The Good Risk Manager's Prayer 0 Comments | By admin
I like to start many Risk presentations with the quintessential question “What sank the Titanic?”
The answer of course is “Iceberg”. Or is it?
Sailing from Southampton to New York, the 46,000-ton Royal Mail Steamer Titanic struck an iceberg in the North Atlantic at 11:40 p.m. on Sunday, April 14, 1912, on her maiden and final voyage. Within three hours, she had sunk to a depth of 13,000 feet; more than two-thirds of the 2,224 passengers and crew perished. Had the “unsinkable” luxury liner stayed afloat longer, the tragic loss of life could have been mitigated by rescue ships getting to the disaster scene.
The climate thousands of miles away may have contributed to the sinking of the Titanic. At a time when the weather was much warmer than common in the Caribbean, a complex interplay of two surface-water currents — the Gulf Stream and the glacier-laden Labrador Current in the North Atlantic — as well as an extraordinarily high spring tide three months earlier, concentrated icebergs. The Titanic’s radio operator had not communicated a critical ice warning received from the SS Mesaba: the message read “Saw great number large icebergs also field ice. Weather clear”. It was interpreted as non-urgent; it was not prefixed with “MSG” (“Masters’ Service Gram”), to require a personal acknowledgement from the captain. The Titanic had been sailing too fast, Capt. Edward Smith had not paid attention to warnings. There were no binoculars on the bridge for the lookout when they did get close up to the Iceberg.
The Titanic was the most modern ship of her day. She featured the latest technological innovations, yet material used in her construction turned out to be expedient, cheap, inadequate. Poorly cast wrought-iron rivets caused the steel plates on the hull to come apart. The math and the physics of the collision show that six compartments flooded when, if it had only been four, the ship would not have sunk. The steel had been cut in places that weakened it structurally – the cuts were needed for customer-service, to create better access to kitchens. There were not enough lifeboats; they just met the minimum legal requirements at the time. Even if all the lifeboats were deployed correctly and fully, only 1100 of the 2224 could have been saved. As it turned out, just 700 were. Procedures were not clear. A lifeboat was lost when it was deployed incorrectly. In others, the women-and-children only shouts meant that many seats went empty.
The facts of the Titanic, and the astonishing cascade of events go on and on. Every possible control failed in sequence. A Perfect Storm had come to pass – my last post has my view of a Perfect Storm as a set of events brought together by human frailty and bad behavior, and carefully engineered for a huge failure.
So what? After the Titanic, many systematic defenses, early-warning triggers, and controls that were too expensive and business-unfriendly till then, suddenly became affordable, and mandatory. Double steel hulls; radar communications and large range; adequate lifeboats; procedures and safety drills; engineers on shipping boards instead of just shippers and businessmen…Risk Management had arrived. Late. Urgently needed. Suddenly welcome. Of course affordable.
In the aftermath of MH 370, all attention swung to the easy availability and relative cheapness of live-streaming locational equipment; better battery life for cockpit-voice recorders; more training; remote-operated aircraft, mental checks for pilots …. Katrina brought improved emergency-preparedness. Waterproofing came in vogue with Sandy. Homeland Security after 9/11. Trading-room controls after the big Rogue-Traders. Access Controls after hacking incidents. Maker-Checker after Madoff. The Volcker Rule after Lehman. Millions are spent on AML, billions now on Cybersecurity. Find the latest large accident, and you will quickly reach the latest large spending binge … (many cognitive biases also rolled into one). Not all bad at all, says the Risk Manager. Stable doors are locked after horses have bolted. But the locks offer hope for keeping in the horses in the future.
And that brings me to the Prayer. Irrespective of the religion he professes, the good Risk Manager rolls out of bed, falls to his knees, and fervently pleads “God, please send me an accident today” … ok, don’t make it too big that it consumes us all; make it just bad enough to draw attention, introduce and reinforce lessons, point out the affordability of risk-management … Disasters bring Change. For the good. Risk Management and Compliance suddenly become much more welcome. Seated at table. Affordable.
But how much is right? Depends… I will make that the subject of my next missive. Till then, watch for those accidents. Grab and embrace them. No good crisis should ever be wasted. Extract the lessons. Make them portable. Survive.