Risk Defined |
News & Views |
UPDATED: February 18, 2012
Risk-taking is central to exploration and the advancement of civilization. Columbus was a risk-taker. So were Amundsen and Scott. Arguably Amundsen was a more prudent risk-taker than Scott. Listed in this Hall of Shame are cases where the risk-taking was imprudent and there was mass suffering as a result.
2008 Financial Crisis - There has been more ink, real and virtual, rightly expended on this topic than any other in recent years. While the near collapse of global financial markets was caused by more than poor risk management, poor risk management was certainly a major enabler and contributor to the mess. Numerous expositions on aspects of the subject, such as the downfall of certain firms and the survival of others can be found on the shelves most bookstores. A general critique of certain sources of risk to the financial system can be read in Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets? by Pablo Triana.
Some apologists argue that there was no way to know the extent of the systemic danger before the events of 2008, but this is not true. The Long Term Capital Management (LTCM) collapse in 1998 showed the systemic danger created by large, interconnected firms investing massively in financial derivatives. This is chronicled in the book When Genius Failed by Roger Lowenstein.
Hurricane Katrina - There's little I can write about this which has not already been written. It was well known to those of us in the weather risk and emergency management communities that a major hurricane striking New Orleans or nearby was a disaster waiting to happen. Every summer when I was working on the National Hazards Assessment desk at the National Weather Service’s Climate Prediction Center, I would sweat bullets whenever there was a tropical system in the Gulf of Mexico. The National Hurricane Center has the primary responsibility for forecasting and issuing official warnings for tropical storms and hurricanes, but part of my job was to indicate what potential threats from tropical storms existed beyond the five day limit of the Hurricane Center’s official forecasts. This was an imprecise forecast giving vague warning at best, but still I did not want something like Katrina to be neglected on my watch. I had left the Weather Service before the 2005 tropical storm season, but as Katrina approached and in its aftermath I was incredulous at the inadequate response of our political leaders.
The Storm, by Ivor van Heerden and Mike Bryan, recounts the accurate predictions, the hurricane, and the derelictions of duty which helped delineate the eventual disaster. That the threat was downplayed, the forecasts acted on belatedly, and the response not swifter and more effective is simply criminal.
Johnstown Flood - The town of Johnstown, PA was destroyed by a flood on May 31, 1889 with over 2,000 people killed. Of course, disastrous floods are a regular occurrence, and the Johnstown area has suffered major floods since 1889. The reason this flood meets the criteria for the Hall of Shame is that many of the deaths and much of the destruction was not due to the heavy rain per se but rather the collapse of the substandard, inadequately maintained, privately owned South Fork Dam.
The Johnstown Flood was two time Pulitzer Prize winner David McCullough’s first, and critically acclaimed, book.
The Deepwater Horizon sinking/oil spill - This disaster is ongoing as of this writing, but it is already clear that this has been a classic example of the failure of risk analysis and risk management. Eleven workers onboard the Deepwater Horizon in the Gulf of Mexico are missing and presumed dead from the explosion, fire, and ultimate sinking of the oil drilling rig. The fact that the blowout preventer failed to prevent the spill is a textbook case of the maxim "Fail-safe systems fail by failing to fail safe". Why the fail-safe system failed in this case is still being investigated. In the meantime, a large amount of crude oil is spilling into the Gulf of Mexico, creating terrible environmental, ecological and economic damages despite efforts to stop the spill and cap the well.
Risk Defined |
News & Views |
©2012 Russell Martin