AmalfiCORE Blog

Overlooked Risk Realizations

Risk realization defines the ability of an organization to recognize threats, vulnerabilities and hazards and understand how those risks impact successful operations. Too often, a company may recognize risks, but may not always see or understand the complexities or interdependencies of risk on a broad or more global scale. Decisions are made at an executive level to prevent, mitigate, and control risks, however there may be unintended or negative consequences of the decisions. Regardless of the decision and actions taken to manage the risk(s), there will be an altered state of risk following the action(s). It’s important for company risk managers and executives to keep informed about the modified impacts due to altered risk states. [1]

An example of risk realization gone wrong is the recent BP oil spill. The media has reported that BP Oil company has developed many risk scenarios across multiple risk models. Yet, they apparently were totally unprepared to contain, control, and manage a spill of the magnitude experienced in the gulf this year.

An example of risk realization gone right is the frequent food recalls we seen on a regular basis across the food manufacturing industry. Beef, pork, chicken, dried foods, vegetables and more are often reported on a recall due to either salmonella or e.coli bacteria found in one or more lots. The food manufactures quickly identity the lot, product codes, shipment, factory station, and component source (eg. farm) and take immediate actions. Alerts are issued, notifications for recall with key data about the products are made, investigations are launched into the method by which the contamination occurred, and the ‘all clear’ is issued that says something to the effect of all the rest of the food products are fine, the contaminated food in question has been eliminated from the distribution chain, and we can all go back to eating what we choose. Unfortunately, the incidence of food contamination seems too high and too frequent.

The food companies appear to realize their risks and the confluence of multiple risks occurring at the same time, and have a plan in placed ready for execution.  While the brand may be temporarily tarnished, the masses of consumers do eventually return to eating what they want when they want it.

The key to mature risk realization seems to be that an organization is practicing a less myopic and more broadly considered view of the risk model and applying critical thinking to that model. That seems to be a recipe for success. [2]

References:

[1] Sikich, Geary. (2008). “The World of Risks and Opportunities“. Norwich University MSBC Seminar 4 Lecture Week 8, 2010

[2] Ibid.

The Impact of Clean Energy Policies on a Company’s Energy Policies

I write this to you from the comfort of my evaporative-cooled home on a hot summer afternoon somewhere in the United States. The personal computer hums quietly in the background as I sip coffee and set the cup back down on my cup warmer. The small desk lamp lights my reference material and other incidentals on my office desk. I’ll shower soon after my work-out and enjoy the warm water on my back. Later I will drive a gas-powered automobile to return family visitors to the airport for their ride home two hours away by plane and then I will complete my round trip 110 miles ride home, perhaps stopping off at a coffee shop for an iced espresso. Those machines produce great steam to careful brew the coffee, heh. And that’s just the tip of the iceberg of how much energy we consume daily. What about you? What about businesses that produce all of our goods and services, who employ us and ‘make the world go ’round’?

OK, my dilemma is I also support a global effort to decrease our negative impact on the earth from man-made activities and dependence on non-renewable polluting energy sources. I am trying to reduce my carbon footprint (but frankly I’m not convinced Gore’s work is sentinel).

As companies and businesses struggle with being ‘clean’ and still conducting vital business and the delivery of services we all require/want/need/like, there is an inherent risk. That risk is understanding and managing the complexities and dichotomies of clean and healthy vs profitable and responsible.[1]

It’s going to cost someone, somewhere, a large amount of cash to adhere to the increased energy restrictions and controls as a result of proposed legislation. [2]  There will be adherence rules that provide allowances for energy companies to be subsidized to achieve the 2012-2025 clean energy goals. However, there is proposed direction that those allowanced must eventually be transferred to the customers (energy users, like us). [3]

Back to the complexity issue. The myriad of interdependencies seems beyond my current understanding. In the Global Risks 2009 report (Economic Forum 2009) 36 risks were assessed and evaluated to determine likelihood, severity, and anticipated number of deaths. Looking narrowing at just the environmental category we find some examples of impact in the following table:

Table:

“# Environmental Risks Likelihood Severity

20 Extreme climate change-related weather

As the effects of climate change have begun to manifest themselves in weather events, this risk remains constant year on year but given that many of these incidents affect developing regions the number of deaths is likely to rise.

21 Droughts and desertification reduces agricultural yields
As the incidence of drought has risen, production has shifted where possible to less drought-prone areas or to more drought-resistant crops. Nonetheless, desertification remains a risk to incomes and health in vulnerable regions.

22 Loss of freshwater

Greater awareness and education and improved sanitation is slightly reducing the number of deaths but overall this risk is constant in terms of likelihood and severity.

23 Natural catastrophe: cyclone

Improved building standards and better warning information have to contributed to reducing loss of life from cyclones but the risk remains constant for relevant areas.

24 Natural catastrophe: earthquake

The threat of earthquakes remains the same as they are driven by geophysics. Improved building standards and response mechanisms are slightly reducing their impact.

25 Natural catastrophe: inland flooding

This risk rose over previous years, primarily due to flood plain development and an expected increase in climate change-related weather events but remains constant from 2008 to 2009.” [4]

In the balance, I believe that forward movement mean continuing to evaluate risks associated with adhering to energy policies, supporting or dissuading those policies based on a balance of overall good vs untenable costs, and never giving up on the need to find new ways to produced energy – ways which do not pollute the earth and still provide what’s necessary for mankind to survive and thrive.

References:

[1] Weirich, Tom, (June 2010). “Clean Energy Leaders Meet at First Global Clean Energy Ministerial Stakeholder Meeting; Declare Need for World Governments to Align to Ramp Up Clean Energy Deployment“, ACORE. Retrieved 7-25-10: http://www.usgbc.org/Docs/News/CEMSM.pdf

[2] Larsen, John, (July 2009),  “A Closer Look at the American Clean Energy and Security Act“. Retrieved 7-25-10: http://www.wri.org/stories/2009/07/closer-look-american-clean-energy-and-security-act

[3] Larsen. Ibid

[4] Economic Forum, “Global Risks 2009“, The World Economic Forum Report, Citigroup, Mash & McLennan, Swiss Re, Wharton School Risk Center, Zurich Financial Services, January 2009

Bibliography:

Sikich, Geary. (2008). “ The World of Risks and Opportunities “. Norwich University MSBC Seminar 4 Lecture Week 8, 2010