Systematic Risk Management Blog

FAQs About Systems-Based Risk Management (Clone)

Posted by Vernon Grose on Tue, Mar 14, 2017 @ 14:03 PM

If you have followed this blog you know I have created a unique and highly effective method of managing risk. I call it “systems-based risk management” or “systematic risk management” because it uses a systems approach that enables you to combine all facets of risk into a graphic format that visually ranks risk priorities.

This video explains systems-based risk management and what it can do for you.

Four frequently asked questions often emerge for people considering systems-based risk management. Here are the questions, followed by my answers:

1. Does this really work or is it just theory?

Systems-based risk management has been applied many times in varied settings. The central ranking technique in this book is called a “Risk Totem Pole”—indicating that important risks are up at the head and lesser ones down at the foot. This Risk Totem Pole concept was created to assure that all the risks associated with putting astronauts into orbit around the earth were identified, evaluated for their significance, and brought under sufficient control to complete the mission.

From such an auspicious start in the space program, the Risk Totem Pole concept was soon applied in many earth- bound settings—even in those beneath the earth, such as the design of the subway system in the nation’s capital. Other widely different applications of the Risk Totem Pole method for managing risk have occurred in areas such as medical centers, international terrorism control, grain elevator explo­sion prevention, offshore drilling for oil, insurance loss control, coal mining, and criminal justice. There is really no sphere of human endeavor where this technique would be inappropriate.

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2. Does this apply to a company or organization the size of mine?

The Risk Totem Pole concept is not confined to large- scale uses. It works equally well in small businesses and in retail outlets whose products may be common and ordinary. The Risk Totem Pole has even been used by a small agency to place in priority a variety of tasks whose relative contribution to preventing losses could not be resolved through discussion among employees. Because its simplicity is recognized by all who have applied it, business executives, staff administrators, and even first-line supervisors feel at ease using it.

3. Can we afford the control of our risks?

The most startling aspect of our approach is the open admission that all risks should not be controlled. There is a myth that says, “If you find a risk, you are obliged to do something about it.” This is foolish thinking. And we are not saying that because we are unable to think of ways to control risks. On the contrary, there are risks that we already know how to eliminate that we still say you should ignore. Why? Because we live in an economic world. With always limited resources, it does not make sense to try to fix every situation where risk exists.

You need to know when to stop spending money to curb your risks. The key word is optimum control of risks rather than total or maximum control. This means trading or juggling cost against performance against schedule until the best compromise is achieved. This is nothing new for decision makers, who do it all the time—in manufac­turing, purchasing, engineering, design, and marketing. The good news is that those people with the title “risk manager” can join the rest of the management world.

 4. Do I have to become an expert in some kind of technique?

No. We help you think through risks as a manager. First, we provide an easy yet profound way to identify risks. It is not sufficient to know what risks are lurking out there, so we furnish a tested and straightforward method to evalu­ate the identified risks. Evaluation may sound mathematical or complicated to you. Rest assured that the method is simple and does not even use numbers. Having evaluated your risks and placed them into a ranked order—the Risk Totem Pole—you will be in an excellent position to control the important risks. This method to rank risks sets us apart from others.

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The bottom line is this: Using this systems approach, you can rationally begin to trade benefit against risk—and feel morally free. No longer will you have the haunting suspicion that you have overlooked a major risk, one that could come back and bankrupt your business. Whether the decisions you must make concerning risk are in a small proprietorship or in a multinational conglomerate, you will have a solid frame­work upon which to base those decisions.

This blog post includes excerpts from Vernon L. Grose's book, Managing Risk. Click cover for more information.

Managing Risk Cover Page

Topics: systems-based risk management, enterprise risk management, systematic management of risk, systematic risk management, systems approach, risk, Risk Totem Pole, FAQs

Reputational Risk

Posted by Vernon Grose on Fri, Mar 10, 2017 @ 14:03 PM

Every organization has a reputation . . . some good, some bad. 

Executives rise or fall with those reputations, too.

What about reputation itself?  People worry about it.  They defend it – even in court.  But how does an organization’s reputation really get started? 

Reputation is created!   Who are its creators?  Decision-makers whose values and priorities about managing risk build a framework that creates a reputation.  Like love and marriage, risk and reputation go together.   

Though it seems obscure – even mysterious, reputation develops in one of two ways.  Either it is consistently formed – or it has to be restored after it’s lost.  Both involve risk.  The key to both is successful management of risk

A long-standing excellent reputation can seem fixed and stable – but be destroyed in a moment . . . by a single unexpected act or occurrence!

Consider the luxury cruise liner Costa Concordia now lying capsized off the Tuscan island of Giglio.  Only a small deviation from its programmed route caused it to slam into a reef and roll over!  Instantly wiped out was not only the reputation of its owner Carnival Corporation but the entire popular cruise ship vacation industry’s reputation was impacted as well!   

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With that evaporated reputation went depressed stock value, major financial loss, immediate lawsuits, cancelled cruises and embarrassing news media coverage.

In contrast, the now-famous but nearly disastrous Tylenol product tampering case proved resilient against impact.  Its reputation was in sudden jeopardy.  But by excellent foresight about risk – realizing a criminal act could destroy its reputation, Tylenol was able to rapidly implement pre-planned re-packaging that preserved the company’s reputation.

Recovering reputation – after it is lost – is a different ballgame.  Will Penn State football ever regain the reputation Coach Joe Paterno took a half-century to create? 

Once a good reputation collapses, crisis managers typically rush in like emergency physicians to resuscitate and restore it.  But reputation recovery takes more than apologies, explanations, and panicked reaction.  Inherent but overlooked risk must be systematically identified, evaluated, ranked, and controlled.    

 So a good reputation emerges as one more advantage of systematically keeping on top of all risks!  And every CEO and Board Member will enjoy the benefits.  Fight on -- risk managers everywhere!    

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Topics: systematic, risk, reputation, recovery, Concordia

4 Steps to Gain Executive Buy-In

Posted by Vernon Grose on Mon, Mar 6, 2017 @ 06:03 AM

board POINTING TO RISK

Most of us have been there . . .  and many of us still are there.  How can you get the Board of Directors to take more interest in risk management?  How can you convince both top management and front line employees to give it more credence and support?  I have seen these 4 steps work often:

  1. Know your Total Cost of Risk - Everyone knows risk control and risk financing are measurable costs of risk.  But a larger, third category (we call it risk extraction) often goes unrecognized.  The Risk and Insurance Managers Society (RIMS) once estimated how much money falls into this unmarked grave.  Executives will recognize they have no idea how large it is and what to do about that cost of risk category.  Read our white paper on Risk Extraction & the Total Cost of Risk.  Calculate your total cost and share it with top management and the board, looking for one or more “champions” to support you and your new plan to reduce those costs.
  2. Focus on Reducing “Risk Extraction” - Commit at least the next full year to reducing that elusive third risk cost figure by at least 5% - in exchange for any new resources and commitments you will need for this new approach.  If you’ve already done a good job explaining risk extraction, the bosses should be willing to accept that offer.  By the way, at this point you are now speaking in financial terms that CEOs, CFOs and board members are comfortable with, and not rehashing the moralistic arguments that they dread facing year after year.  You’ve also, refreshingly, changed the focus away from risk controls and risk financing. 
    Very importantly, at this point, you must insist that you have the CEO’s mandate (for the agreed period of time) so staff must willingly participate in steps 3 and 4. 
  3. Get Systematic About Risk Identification - Map out your organization (your system) in terms of the functions that turn resources and conditions into successful outcomes, i.e., the products and services you are in business to deliver.  Analyze each function objectively, thoroughly, and with the help of the people ‘on the line’ who perform those functions.  Find out what could go wrong on ‘a really bad day’.  Write risk scenarios for every function, and price each scenario’s worst case outcome or loss - as well as 2 or more countermeasures to manage each risk.  As employees see improvements being made based on these risk scenarios, they’ll increasingly buy-in and participate.  Consider contests and incentives to reward participating staff.
  4. Take Them to Court (The Risks, that is) - Form an internal jury of respected employees – hand-picked by the board of directors or CEO – to rank the risks from most critical to least critical.  Risk Jury members are quick to buy-in as they debate and vote on each risk scenario and proposed countermeasure.  Deliver the results to the CEO for decisions on how many countermeasures should be funded and implemented . . . how far down that list the organization should go before accepting the less critical risks.  If more funds are needed, the CEO has an objective argument, developed by his best people, to seek board approval – not to mention to protect him/her from critics of those decisions.  More importantly – and perhaps for the first time ever - there is a systematic business process to determine how and why to allocate the organization’s financial and human resources.  Reducing risk must make good financial sense.  Make it a management decision – not a moralistic proposition.  Make it a profit center.  Every C-Level officer and director should be able to buy-in to that.

If you cannot secure the desired level of buy-in with these 4 steps, consider whether the organization is deserving of your skills and dedication . . . whether the organization is on a path to inevitable decline . . . whether there are other organizations more willing to proactively look at risk as a way to be more compliant, more engaged and more profitable.

 

Topics: risk management, Risk Extraction, Risk Identification, Management buy-in, Executive buy-in, Buy-in, Gaining Buy-In, Total Cost of Risk, Risk Jury, Really Bad Day

Topics: ERM, systems, Risk Jury

Video: How Systems-Based Risk Management Sees the Full Picture

Posted by Vernon Grose on Mon, Feb 27, 2017 @ 10:02 AM

The systems approach to risk management seeks totality of understanding. Put another way, systems-based risk management means seeing the full picture.

The objective is omniscience, or unlimited knowledge of a system, its use environments, and its risks. This idealistic goal is never reached, of course, even though it is vigorously pursued.

 Video: Why Risk Management Must See the Full Picture

Two quite different kinds of understanding are combined to obtain a complete picture.

Theoreti­cal understanding is related to comprehending how all the elements in a system (for example, physical plant, products produced, personnel employed, management policies, and ac­counting methods) are intended to interact with one another. In contrast, practical understanding is knowing how these factors actually work together in a real world.

These two contrasting attempts at understanding were once dramatically illustrated while I was Director of Reliability for Litton Industries back in the early 1960s. The company had pioneered the first miniaturized inertial guidance system for fighter aircraft.

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Inertial systems are extremely sensitive devices. Litton’s systems were built in a unique new facility where it took workers a full week just to check them out. Checkout took place on a seismicly isolated rate table (free from any vibration within the building] in a temperature-controlled “clean room” (free from any particles larger than a micron). After checkout, each system was tenderly placed in a special shockproof container and shipped to Lockheed for installation in the German Luftwaffe F-104G being assembled at Palmdale, Cali­fornia.

Early in the program, my boss had asked me to visit Palmdale to find out why we were having so many odd problems with the system. Nothing seemed to fit any pattern of failure.

As I stepped off our company aircraft on the hangar apron at Palmdale, a 110° desert wind whipped sand into my face. A yellow three-wheeled scooter with a little cargo space in back caught my attention. Its driver, obviously happy and con­tented, was whistling as he drove across the tarmac at a fair clip.

Each time he hit one of the tar strips on that huge apron, he, the scooter, and its contents bounced up in the air.

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I continued to watch him as he headed in my direction.

When he got close enough for me to see what he was transport­ing behind him, I nearly fainted. It was one of our inertial guidance systems—without its special transportation case! Each passage over a tar strip had given it an unscheduled shock test.

“If they could only see it now,” I said under my breath while thinking of all the scientists, engineers, and technicians at home—those with only theoretical understanding.

I was gain­ing practical understanding. We tried to combine the two when I got home. Litton eventually obtained a more complete (but not necessarily total) understanding of its system.

 

Managing Risk by Vernon Grose

Topics: systems-based risk management, risk management, systematic management of risk, Risk Extraction, classical risk management, systematic risk management

Insurance Is NOT Risk Management

Posted by Vernon Grose on Thu, Feb 23, 2017 @ 16:02 PM

For a business to survive, its owners must be savvy enough to analyze and manage all of the risks inherent to its day-to-day operations. Risk is not just a matter of property, casualty, and liability losses. It's also directly connected to a company's profits. If a risk manager sees his job only as the decider of insurance agents and brokers, and what-to-insure vs what-not-to-insure, he should consider upgrading his process.describe the image

Insurance is not risk management, it's simply one of many options to consider when deciding how to handle a company's risk. In fact, it actually represents only about 15% of an organization's total cost of risk. But if that’s true, why do so many companies choose to handle their risks by purchasing insurance?

Insurance is very different from managing risk

An insurance manager can do much more to protect an organization than fill out insurance applications. Billions of dollars change hands every day, shifting the cost of losses one direction or the other, depending on how skillfully insurance managers, brokers and underwriters do their jobs.  Once an insurer decides to issue a policy, the business pays a premium, anticipating the transfer of risk for something that may or may not happen over the next 12 months.

With insurance as the hub of a risk management program, a few other decisions fall into place: large deductibles, retention limits, and self insurance of high risk operations most insurance companies wouldn't touch anyway.

describe the imageAs a necessary cost of doing business, insurance makes sense until a few years pass, hundreds of thousands of premium dollars change hands, and a business has yet to file a single claim? And what happens when a company runs into a risk that can't be handled by purchasing an insurance policy?  Real management of risk begins where insurance ends - and it should push that line back so that less is spent on insurance as time passes.

Insurance should be a risk management maybe

When insurance is no longer the go-to option, a risk manager must do his homework. Of course, s/he must begin with an intimate knowledge of the organization's finances, products, production, management, employees, profits and losses, and anything else related to daily business operations. Only then can s/he do the real work:

  1. Identify LOTS of risks.
  2. Determine each risk's likelihood of occurrence.
  3. Calculate the maximum potential loss of each risk.
  4. Calculate the costs of the 3 best ways to mitigate each risk.
  5. Rank all risks based on probability, severity AND countermeasure COST.
  6. Decide the 'cut-off' for controlling vs. accepting the risks.
  7. Use a review process to add new risks and reconsider previously accepted ones.

These are seven of the 10 Steps of SMART.

A Word About Insurance and Risk Manager Designations

With all due respect to the many RM designations and credentials, describe the imageall the hard work spent attaining them, and all the well-meaning institutions that 'sell' them, those letters won't do much to overcome a flawed process for managing risk. Nor will a great process overcome a lack of management buy-in or limited communication and personal skills in your risk manager/champion. (I'll be writing more soon on "risk champion".)

To understand why so many RM processes are flawed, watch our short video at www.omegainc.com and please read "How SMART Addresses the 5 Weaknesses of ERM". With 85% of the cost of risk existing outside of insurance, how mature is your process for truly managing risk?

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As always, contact us if you'd like to know more about reviewing or upgrading your company's risk management process.

Topics: enterprise risk management, systematic, transfer risk, risk solutions, insurance, risk manager skill set, Analytical Inclination, ranking risks, definition of risk

 

Topics: CEO

RISK TRADE-OFFS  REGARDING DEATH

Posted by Vernon Grose on Thu, Sep 8, 2016 @ 09:09 AM

Part 3 of 3 . . .

There is something odd about risk. It is almost deceitful. Why? Because it always involves giving up something. It demands an exchange of “this for that.”

          And whatever “this” is, death is ultimately “that.”

          In politics or business, this is called a trade-off.   David Stockman, OMB Director in the Reagan administration, described the political exchange of one thing in return for another – especially relinquishment of one benefit or advantage for another regarded as more desirable, “a fundamental trade-off between capitalist prosperity and economic security.”

          For every person, death is the ultimate risk. No other risk exceeds its significance. No other risk can follow it sequentially. No other risk is as prevalent – it is even potentially in the air that we breathe.

          Not many people deliberately and knowingly subject themselves to risk   -- on a regular basis.  However, it is worth your time to pause a moment . . . to reflect on the possibility of your personal unconscious opportunities to trade risk for that final loss.

Risk Exposure

          You and risk must meet before any loss can occur. That meeting is generally known as exposure rather than discovery because it occurs without personal effort or searching. Risk exposure likely occurs during one of three possibilities.

          Deliberate Disclosure

         People who pursue certain occupations are recognized – not only by those performing them but by the general public – as consciously exposing themselves to high risk. It is no secret. Risk is deliberately faced.

          And we highly honor “first responders” like those who knowingly  plunged ahead into the burning Twin Towers on 9/11.

          Why is risk deliberately disclosed? To avoid employee surprises, to qualify employee physical capability, to avoid litigation, or to enable insurers to align their coverage rates proportionately.

          Inadvertent Discovery  

           In high contrast to those who knowingly expose themselves to risk, there are far many more who discover themselves confronting risk as a surprise for the first time. It could be due to ignorance, neglect, suppression, or attitude. But they unwittingly become aware of being vulnerable to a wide range of risks.

         Some of those risks are suddenly discovered to have been present for a long time but simply unrecognized or unidentified. Consider asbestos. It was a popular material for most of the twentieth century, mainly because of its ability to insulate and act as a fire retardant. However, we now know enough about asbestos risks that it's banned outright in more than 50 countries.

          Another risk – particularly for pregnant women – is Zika that until very recently has not been considered a major threat to human health. But in May 2015, it was reported in Brazil and has since spread rapidly. The US National Institutes of Health says, “Its current explosive pandemic re-emergence is truly remarkable.” It is spread mostly by the bite of an infected Aedes mosquito for which there is no vaccine or medicine.                                                

         Caught in Ignorance

          The third avenue of risk exposure is illustrated by earthquake, tsunami, warfare, and terrorism – all of which lie well outside personal responsibility or control.

           A more recent and frightening risk – EMP (electromagnetic pulse) that can occur naturally (via solar activity) or artificially (induced by high-altitude nuclear explosion) could instantly cripple all electronic devices within a nation. The Commission to Assess the Threat to the United States from Electromagnetic Pulse (EMP) Attack was established in 2001, acknowledging this frightening and massive risk.

Many Faces But Singular Destination

          So risk confronts you frequently – perhaps incognito or disguised – ready to be traded off. Risk implies that you are exposed to danger, harm, or loss – even if it is innocuously described as, “He risked his life to save his dog.”

           Of course, whenever “loss of life” is mentioned regarding risk, it is always a terminal event -- the end of the line. Its finality is presumed.

          Role of Belief Regarding Risk

           Whatever you believe about death is undoubtedly based on your

Weltanschaunng – a comprehensive conception of the universe and your relationship to it. So inevitable and continual exposure to risk assures that any tradeoffs you make to lessen its impact will involve values you hold about the meaning of death.

           Therefore, the tradeoffs you exercise – whether consciously or unconsciously – to avoid death are linked to age-old beliefs about what transpires after it occurs.  

           It is worthwhile to pause and review what you believe occurs after you die!  

 

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 To explore a systematic approach for managing your risk of death, a new book DEATH Is Not FATAL is available at this link: http://tinyurl.com/gu6kerz.

Topics: death, risk of dying

DEATH -- THE  ULTIMATE  RISK

Posted by Vernon Grose on Thu, Aug 25, 2016 @ 15:08 PM

Part 2 of 3 . . .

The ever increasing threat of world-wide terrorism appears to have no objective, no rationale, no end.

          Historically, wars have always ceased. New boundaries are generally drawn. Political power shifts. Cemeteries are dedicated. Memorials are built.

          Even the oft-quoted Biblical saying “Beat your plowshares into swords, and your pruning-hooks into spears: let the weak say, I am strong” is reversed as warring nations disarm and return to the quiescence of peace.  

          However, what is happening now in the world is larger than war. Middle Eastern scholar Bernard Lewis argues that militant Islam is engaged in no less than a “clash of civilizations” with the West.

          What is the significance of that expanded threat? Your personal risk of death has not changed one iota. However, that threat vastly increases the unpredictability of everyone’s death – its timing, location, and source.Death_Is_Not_Fatal_Book_Cover.png

Living With Risk of Your Death

          Given that all of us live in a time of increasing uncertainty about when, where, and why we might die, wisdom suggests that we should refine/update our awareness of the risk of death.

          It neither need be morbid nor frightening – only rational.

Foreseeable -- But Manageable?

          Becoming aware and searching for risk seems to be a wise first step, even for the risk of your own death. It is rarely done in an all-encompassing way by a majority of us. Most often, it is undertaken only after being triggered by experiencing or observing a big loss. Such effort is, however, an acknowledgement that risk is foreseeable and can be avoided.  

          Once risk of death is identified, it must be addressed or managed, if its impact is to be avoided or even minimized.   Not many of us are sufficiently disciplined to initiate and maintain action that reduces and controls recognized risk.

Intrigue of Risk-Taking    

          It is not normal for anyone to really be totally rational about daily living – constantly evaluating situations, values, tasks, and opportunities for inherent risks that we face. Sure, we know that it would be ideal if we were that sensitive and aware.  

          But somehow, other priorities seem to crowd in and dominate. “Out of sight, out of mind” and “Ignorance is bliss” both seem to describe our attitude about personal responsibility for risk – even risk of our own death!

          Beyond unawareness of risk, another rather unbelievable human trait seems almost universal. The very idea of risk often creates immediate tantalizing, exhilarating thought in many minds regarding their personal involvement – but at a distance. Almost everyone loves to watch risk’s teasing of death and destruction. The higher the stakes, the greater the thrill!

          Why are the Navy Blue Angels or Air Force Thunderbirds scheduled to scream “on the deck” across crowded stadiums just before kickoff of important football games? What is their connection to the game itself? Whatever the reason, the result is to momentarily satisfy human exciting entrancement with risk!

          Or imagine a circus without demonstrated defiance of risk – by tight-rope walkers or human bodies being fired from cannons. The audience is thrilled vicariously – urging even more dangerous acts!   Why is that? What is it that is so appealing? Could risk-taking actually be an indigenous – even incurable – part of human nature?

          Returning to terrorism’s impact on all our lives – its ratcheting up the risk of death for all of us, it is essential to recall and weigh three fundamental facts about risk and humanity:

  • Risk is the potential for human loss
  • Risk is universal – everyone experiences it
  • The ultimate risk is loss of life or DEATH

To explore a systematic approach for managing your risk of death, a new book DEATH Is Not FATAL is available at this link: http://tinyurl.com/gu6kerz.

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Topics: death, risk of dying, risk-taking

MANAGING  THE  ULTIMATE  RISK

Posted by Vernon Grose on Mon, Aug 22, 2016 @ 09:08 AM

Part 1 of 3 . . .

Headlines scream almost daily about the increasing threat of terrorism.

Iran has said the international community should make fighting terrorism its top priority, after an 18-year-old German-Iranian gunman apparently acting alone killed nine people and wounded 27 in Munich.

That attack was the third on civilians in Western Europe in eight days.

"Today, fighting terrorism, in any form and place, is an urgent demand of the world community ...that should be considered as the top priority by all countries in an international consensus," Iran's Foreign Ministry spokesman Bahram Qasemi was quoted as saying by state news agency IRNA.

Affirming that view in the US, CIA director John Brennan says ISIS militants are preparing to deploy operatives for more attacks on the West, relying on guerrilla-style tactics.

But is terrorism the highest risk in the world today? Beyond its unpredictability and brutality, what is the ultimate risk of terrorism?

Your personal death !

Risk has many other faces than terrorism, of course. Threat, hazard, falsehood, liability, environmental pollution, financial bankruptcy, and toxicity all point to a single ultimate event – human death.

Exposure to Death’s Risk

All seven billion humans on earth move about in an environment of risk that exists regardless of personal intent, awareness, involvement, or consent.

Earthquake, tornado, tsunami, volcano and other natural phenomena occur randomly in timing and location. And man-made violence – war, murder, arson, rape, and robbery – join terrorism by flourishing everywhere.

Given the inevitability of experiencing the risk of death, wisdom suggests that it should not only be anticipated but managed!

MANAGING Risk of Death

You and I are both source and recipient of undiminished risk. That reality demands that those two aspects of exposure be addressed for their vulnerability and assailability.

Not all risks apply to all people. Some people deliberately subject themselves to risk as part of their work. Skyscraper construction workers, law enforcement officials, and miners are among those folks. Others – whether due to ignorance, neglect, or attitude – are unknowingly vulnerable to a wide range of recognizable risks.

Risk can also be considered an impersonal assaulting force on humanity – almost like a provocateur or agitator actively seeking the most effective means to achieve its objective of loss. And this can be either an individual or collective force.

As radical as it might appear, each one of us can actually manage our own risk of death.

 HUMAN__DEATH__viewed__as__a__SYSTEM_Vernon__L.png

Figure 1

My latest book, DEATH Is Not FATAL, is based on a systematic approach to managing the risk of your death – transforming known inputs into desired outputs as shown in Figure 1.

A copy of the book is available at this link: http://tinyurl.com/gu6kerz.

 

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Five Big Issues that Could Make the Next Airline Crash the Worst Ever

Posted by Vernon Grose on Thu, Sep 24, 2015 @ 15:09 PM

A London-bound Airbus A340-600 about to take off from New York's Kennedy Airport was recently grounded after its wing hit a fence.  The Virgin Atlantic clipped the fence due to a “miscalculation.”

Everyone had to evacuate the aircraft but fortunately, no one was injured.  However, the incident was a reminder that airline safety still involves risk – particularly should two newer, larger aircraft carrying upward of 1,000 passengers happen to collide.

As a former Member of the National Transportation Safety Board, my years of working to improve airline safety causes me to remain vigilant in reminding the traveling public that safety is still a concern. 

One example is emergency evacuation at an airport – where hundreds of passengers could be required to exit down slides in a matter of seconds.  

The Airbus A-380 will seat up to 853 passengers. Deaths-per-crash could easily exceed 1,000 should it collide with any other typical airliner.

Many people believe that safety implies “no risk.”  If something is safe, it must be free of risk.  That can be a deadly assumption.

There are four vital differences between safety and being risk-free.

  • Safety looks backward, risk looks forward. Safety is an attained condition – something proven by history.  That’s how current airline safety can be measured against previous airline safety.  In other words, safety looks backward at accident rates while risk looks forward at potential deviation, threat, or potential loss that can impact – actually, determine -- airline safety as shown in this figure.  Have you ever heard, “It was the first time this has ever happened”? 

  • Safety is only one component of risk. Safety has many cousins that contribute to risk as shown in the following “risk flower.” Achieving airline safety requires compromise, adaptation, ranking, support and recognition of those other eight risk elements.  Thus, the current merger of American Airlines and U.S. Airways introduces new risks that influence airline safety, such as resolving pilot seniority, reorganizing routes, crew adaptation to different aircraft, and revised flight scheduling to name a few.  

  • Safety is never static. Airline safety is constantly in the process of being both created and modified by many different forces.  Aircraft are aging, air traffic control is changing, weather is unpredictable, airlines are reorganizing, airports are being updated, and technology is impacting all those factors.  Every one of those aspects have associated risks.

  • Risk must be identified, evaluated, ranked, and controlled. Anything short of this effort is not managing risk. Future airline safety depends on it. Should it be ignored, randomly addressed, or assumed to be non-existent, airline safety will be degraded.  

Looking forward, there are at least five serious issues affecting airline safety that must be systematically addressed for their inherent risk:

  • Larger Aircraft. The trend in new airliners is increased passenger capacity.  Whether airline safety is measured as fatal crashes per year, deaths per flight, or deaths per flight hour, there is another safety indicator of concern – deaths per crash. The Airbus A-380 with its full, two-deck economy configuration will seat up to 853 passengers. The deaths-per-crash could easily exceed 1,000 should it collide with any other typical airliner. Even if the A-380 experienced fire while on the ground, imagine emergency evacuation from two levels via slides for the elderly, infirmed and small children. The last fatal crash in the U.S. was Colgan Air Flight 3407 near Buffalo in February 2009 – wherein only 50 died.

  • World-wide political crises. The social and political upheavals of European and African nations have stressed government agencies and created considerable risk for airline safety. Migrants from African and Middle Eastern nations are now approaching the millions, with thousands of virtually untraceable potential threats flooding into European Union countries.  Not only are both passengers and employees losers in this trend, but airline attitude, motivation, and creativity atrophy. 

  • Machines replacing humans. The transfer of aircraft piloting responsibility from humans to machines increases risk. Technological sophistication favors efficiency (e.g., fuel conservation) over judgmental involvement. Example: Air France 447 crash in 2009 due to pilot inability to comprehend automated but inadequate flight status.

  • Cyber-terrorism. The threat of cyber-terrorism is on the rise, and airline operations are vulnerable to potential disruption of networked infrastructure in communications, air traffic control, routing, and weather forecasting. All airborne airliners (1,000+ over the U.S. at any time) are in a 3-dimensional environment that depends on separation, guidance, and location information external to the aircraft.

  • Legalization of marijuana. The most commonly used illicit drug will increasingly impact pilot performance.  Effects of its use include distorted perception (sights, sounds, time, touch) as well as memory and loss of coordination.  In addition, marijuana use can produce anxiety, fear, distrust, or panic.  There are no accepted rules or means for detection as there are with alcohol consumption to govern pilot usage.

    Though this list of airline risk factors is not exhaustive, it should alert those responsible for airline safety that only with systematic, all-encompassing, global management of risk will the current, admirable status of airline safety be maintained. 

    Managing risk always demands looking forward – and with a methodology for doing so.

    Topics: airlines, aircraft risk, Boeing, accidents, Airbus

Didn't See THAT Coming!

Posted by Vernon Grose on Wed, Aug 19, 2015 @ 09:08 AM

Another movie theater shooting.  Another attack on our military on U.S. soil.  Another inexplicable death at the hands of our police.  Another unexplained fire or worse, shooting at a church . . . or a school.

Lone wolf?  Black Swan?  One-off?  Or a trend needing attention?  Is it possible to manage and prevent such losses?  How do we apply risk management principles to such events?  Is it futile?  Who’s job is it to manage such risks?  I hope, not THE GOVERNMENT’S

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What if your insurance company insures the theatre or church?  What if you manage the property or the police force?  What if you  Another are the school principal or the city manager?  How do you anticipate a tragic event like any of the many we have now witnessed (mostly from afar, of course, thank goodness)?

We believe the answer lies in systematically defining what goes on when things work smoothly, then creating scenarios in which things go horribly wrong.  The media tells us what happened after the fact.  It is an executive’s, and the risk manager’s job to anticipate and prevent it.

Based on the growing risk of terrorism, whether racially motivated, or sponsored by ISIS or al Qaeda, or the result of mental illness, every organization should have risk scenarios that involve a terrorist attack.  Does yours?

How do prepare such scenarios?  What do you do with them after you’ve prepared them?  Who’s going to take actions to prevent an act of terror?  Who can afford the cost of prevention?  Are we better off admitting to having a risk scenario we did nothing about . . . or not having the scenario at all?!

We’ve put a lot of thought into these difficult questions and we’ve prepared several short white papers to help answer them.  You can go here to view all our white papers and eBooks.  If these questions are on your mind, start with these topics:

Free eBook:  Princess Diana - Anatomy of an Accident

 

Download our FREE whitepaper The Collapse of Enron  

 

No risk manager or responsible executive wants to hear, “He/she didn’t see THAT coming!” or “that was completely preventable” or “someone’s going to be looking for work after that one”.  I’m not just talking about terrorist acts; this applies to anything and everything that could produce an unacceptable loss.

Looking systematically at both what should go on and what could go on is the first step in effective risk management.  Risk scenarios are crucial to loss prevention - by seeing what’s coming on a really bad day.  A logical and rational way to rank the scenarios and determine when to act or not act is needed next . . . but that’s a topic for another post.  Happy sailing!

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