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Catastrophic Risk Management

Five steps to help manage catastrophic risk

"No-one would have believed, in the last years of the nineteenth century, that human affairs were being watched from the timeless worlds of space. No-one could have dreamed we were being scrutinised, as someone with a microscope studies creatures that swarm and multiply in a drop of water. Few men even considered the possibility of life on other planets and yet, across the gulf of space, minds immeasurably superior to ours regarded this Earth with envious eyes and slowly and surely, they drew their plans against us..."
Opening lines from Jeff Wayne's musical adaptation of HG Wells' War of the Worlds
The 21st century started as a century of uncertainty. A key question that defined 2001 was, "What were you doing on September 11, 2001?" It is a question often tinged with shock and a visceral sensation of disbelief around how on earth it all happened. It was, unquestionably, a catastrophic event, the effects of which still reverberate around the globe. If it were left to HG Wells to capture the events leading to 9/11, he would have written instead:

"No-one would have believed, in the last years of the twentieth century, that American affairs were being scrutinised, as someone with a microscope studies creatures that swarm and multiply in a drop of water. Few Americans even considered the anger of people in other countries and yet, on the other side of the Earth, minds immeasurably more determined than theirs regarded their country with fanatical eyes and slowly and surely, they drew their plans against them..."

A catastrophic event is natural or man-made, causing large-scale physical damage or destruction, a significant loss of life, and possibly a dramatic change to the environment. As I mention in 21st Century Megatrends, natural disasters, like black swans, will come out of the blue. Tsunamis, hurricanes, superstorms, earthquakes, volcanic eruptions, mass-flooding and droughts will continue to take their toll. Despite bold attempts by man, Mother Nature, is beyond our control; and, given rapid increases in population growth, will unleash events of increasing consequence for human life.

But is there any way we can mitigate the effects of such catastrophic events? The other, and lesser known side of 9/11, shows that we can. Around 90% of the victims in the twin towers were at or above the point of impact and thousands of people were rescued from the lower floors before the towers fell. There had been extensive drills before 9/11 involving emergency services and they all paid off.

Ever since The Mind of a Fox over 12 years ago, I have consistently advocated that you cannot just play scenarios; you have to consider the options available to you and select the best ones in advance. This extension of the scenario planning technique brings the scenarios more alive than just considering them as mere possibilities. Moreover, your response in the event that a scenario materialises is likely to be more swift and effective than action taken in the heat of the moment.

Hence, I am now offering a five-step methodology to clients who wish to undertake an exercise covering potential catastrophes to their business:

Identify catastrophic events which could close your operations down in each of your business units and in each region/country in which you have set up shop. Every element of your product range and geographical footprint has its own set of unique risks. Events can be classified as "internal" where a multiple failure of in-house systems can lead to catastrophe; or "external" where adverse political, economic or natural developments or shocks can cause premature extinction. For example, the range of events can include accidents, civil wars, state expropriation of assets, market collapse, massive disruption of supply chains and earthquakes/flooding.

Imaginatively play a scenario on each event highlighting the causal chain which can lead to the catastrophe and the impact on the business of the catastrophe itself. Where possible, select flags which may indicate a rise in the probability of the event occurring such as the abnormal withdrawal of a tide before a tsunami hits the beachfront.

With probability of occurrence on the vertical axis and seriousness of impact on the horizontal axis, locate each scenario on the chart so that you have a real feel for the ones you should prioritise in terms of response strategies and tactics. Which are the real catastrophes waiting to happen?

Make a list of all the organisations who have relevant roles to perform in the event of a catastrophic scenario materialising. In particular, work out where they fit in the decision-making structure and specifically the people in each organisation to contact as the disaster unfolds. Remember actions taken in the first 44 working hours usually determine public perceptions about your competence in handling the event.

Just as a catastrophic fire scenario requires preventative measures as well as emergency procedures should it break out in a building or forest plantation, so each catastrophe scenario should carry its own sequence of pre-event and post-event drills. Each option should be subjected to a cost-benefit analysis so that you have the best drills in place to prevent the event happening and to contain it if it happens.

Simple, but very few companies - even among the top multinationals - practise catastrophic risk management

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