Every company in the world deals in risk management and in every company accidents happen. We all say we are going to learn from accidents, but realistically do we? That question is asked by Marc Gerstein, published the book Flirting with Disaster – Why Accidents are Rarely Accidental published by Union Square Press, NY, 2008. Mr. Gerstein taught at Columbia and MIT and lead a management consulting firm.

Risks are around everyone, the important issue is how do you manage it?

Rules to Live By

The 1st rule of preventing and coping with accidents is understanding the risks that you face.

An example of this is – a fire department responses to a fire. Prior to the fire at an industrial facility it knows what chemicals are keep at the plant. If the data is given the fire department before, on the way to the fire they can prepare for what they expect to deal with.

The second rule is avoid being in denial. There is often a gap between our intellectual understanding of a risk and our emotional acceptance of its danger. An example of this we all know there are accidents on the highway, but we drive for a living.

The 3rd rule is pay attention to weak signals and early warnings.

Contrary to intuition, accidents do not just happen and often not accidental at all. Many complex machines and system exhibit hints that they are about to fail, and many poorly designed systems experience near misses before the big one hits.

The 4th rule is it essential not to subordinate the chance to avoid catastrophe to other considerations.

The final rule do not delay by waiting for absolute proof or permission to act.

There never is perfect information.

Avoiding the Bigger Mistake

We all have to make judgements regarding risks. Figuring out the right thing to do is usually not that difficult. The problem is we must go against our intuition, expend money or time we would rather use elsewhere or go against the grain of the organization in which we work. None of these choices are easy, since the costs in money and trouble are guaranteed, the benefits are not.

Disasters can be partitioned into before, during and after. The bulk of the damage will be in the after, but a tremendous amount of harm can be reduced in the before.

When the event happens, the key which fire departments around the world have perfected, the key to effective real time response is preparation. If you go by your local fire station, whenever there is a shift change they check out the trucks, they spend time doing what could happen. The important aspect is to think through what is possible and what is most likely, aw well as you can and what you should do in each instance, including the worst-case scenario.

Each type of risk requires a different response. Everyone has heard Willie Sutton’s famous answer to why does he rob banks. That is where the money is. If you want to save lives and prevent injuries, look first at those activities that kill and harm people. One example of rating risks is the John Paulos’ Danger Index from his book Innumeracy: Mathematical Illiteracy and Its Consequences.

The most important lesson to learn is that constant vigilance is required in all high-hazard categories. If there is a loose carpet, fix it; if the driveway is icy – sand or salt it before someone slips on it or prevention works.

Professionals and managers in many large organizations face many of the same dilemmas as do ordinary employees. They do not set policy and often have an arm’s length relationships with high-level decision-makers. What can they do? As much as you like information to flow one way, the correct method is to find a method which allows for some dissent. To do this all for dissent when things are going well, if they are not going well, very few will do. One method is to informally appoint a person to challenge the assumptions in a meeting. The person can be rotating but the idea is for people to understand what the risks are. Silence and agreement are nice, but what you are looking for is good feedback to make the decision-making better.

There is sage advice for every organization, what gets measured, gets managed.

Pay close attention to the design of the system. The likelihood that things will go wrong is closely connected to the design of the organization’s equipment, software, training programs, maintenance procedures, and hazard defense systems. When the design is faculty, accidents happen. In addition, how are bonuses given?

Leaders need to know the near misses, the weak signals, we missed biting the bullet. Relabeling problems as opportunities has become a cliche, but there is wisdom in the saying if they turn out to be learning opportunities.

Linking to dividend paying stocks, in the book there is greater detail and you are encouraged to read it, but as an investor you want your company to operate above the saftety requirements to generate profits and pay dividends. Asking what is the company’s safety requirements, some companies advertise x many days without an accident. The better the safety record, the less corner cutting and the better the end product which are all good things. Everyone is involved with risk management and every year it becomes more important to ensure companies are profitable.

There are more questions than answers, till the next time – to raising questions.