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Are you really aware of your worst-case scenario?

by Scott Priest, Editorial Director

July 8, 2010

Craig Rowe at ClearRisk (@ClearRisk) has a great blog post up today reflecting on the BP oil spill crisis. As he points out, this is likely to be the largest man-made environmental disaster in the history of the planet, and it's not that BP doesn't have risk management processes in place, just that they weren't properly aware of the worst-case scenario.

In BP’s risk modeling they would have factored in the US government’s cap on environmental clean-up and damages at $75 Million.  Did they predict that the government would significantly raise the cap or remove it all together?   Did they predict that in addition to the significant increase in damages that their ability to earn would be affected by Obama’s restrictions on new drilling; or that taxes and royalties would be increased significantly ; or that people would boycott their products on mass?

The point is, no matter how sophisticated your risk management process, you can be wrong.  Don’t take that to mean that it isn’t worth trying!  What I’m saying is that no matter how much you prepare and plan and execute, things can happen that are worse than you could have imagined.

Craig's absolutely right. While BP surely has a state-of-the-art system in place with checks and balances, they no doubt put their worst-case scenario at $75 million and moved on without thinking. Of course, it now looks like their situation will be far worse, both from the company standpoint (as Craig points out, they could very well go under as a result) and just from a state of life standpoint -- I can't imagine anyone at BP feels too proud to work there right now, especially with their CEO whining that he "wants his life back" because of the backlash of this mess.

The point is: What is the worst-case scenario? Are you really planned for it? This is the second major disaster inflicted on the planet in two years (the other, of course, being the American economic fallout). We are not invincible, and if we incorporate some common sense and a little paranoia into our risk modeling, rather than just banking on regulations as they stand at a certain point in time, we may be better off. Can you overdo it? Certainly. But with some attention to bigger problems, including ones that can ruin your reputation, as Craig discusses, you can mitigate some risks you may not be aware of. 

Be sure to read his whole post for some of his tips.

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Scott Wallask

9/25/2013 8:45:49 PM

Good topic for any type of business. In the past I wrote a lot about hospital emergency planning, where the idea of risk assessments was a big deal. You'd rank possible scenarios against the likelihood they could happen and the severity if they did happen to get a "score" from which you prioritized which disasters to focus on. I'm not sure anyone would have given a high probability to the likelihood of the BP disaster (particularly how long it's lasted), however the severity of this scenario should have ranked near the top in terms of environmental and public image damage.