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January 20, 2011

Catastrophic risk management

I read a nice article which succinctly summarizes how to identify and cover potential catastrophes their business might face. This is true for the Chemical industry also. I am quoting from the article below:
"1. Identify catastrophic events which could close your operations down in each of your business units and in each region/country in which you have set up shop. Every element of your product range and geographical footprint has its own set of unique risks.
Events can be classified as "internal" where a multiple failure of in-house systems can lead to catastrophe; or "external" where adverse political, economic or natural developments or shocks can cause premature extinction. For example, the range of events can include accidents, civil wars, state expropriation of assets, market collapse, massive disruption of supply chains and earthquakes/flooding.
2. Imaginatively play a scenario on each event highlighting the causal chain which can lead to the catastrophe and the impact on the business of the catastrophe itself. Where possible, select flags which may indicate a rise in the probability of the event occurring such as the abnormal withdrawal of a tide before a tsunami hits the beachfront.
3. With probability of occurrence on the vertical axis and seriousness of impact on the horizontal axis, locate each scenario on the chart so that you have a real feel for the ones you should prioritise in terms of response strategies and tactics. Which are the real catastrophes waiting to happen?
4. Make a list of all the organisations who have relevant roles to perform in the event of a catastrophic scenario materialising. In particular, work out where they fit in the decision-making structure and specifically the people in each organisation to contact as the disaster unfolds. Remember actions taken in the first 48 hours usually determine public perceptions about your competence in handling the event.
5. Just as a catastrophic fire scenario requires preventative measures as well as emergency procedures should it break out in a building or forest plantation, so each catastrophe scenario should carry its own sequence of pre-event and post-event drills. Each option should be subjected to a cost-benefit analysis so that you have the best drills in place to prevent the event happening and to contain it if it happens.
Simple, but very few companies – even among the top multinationals – practice catastrophic risk management. As for the example I quoted at the beginning on extreme weather events, the pieces that are missing are steps 4 and 5".


Read the full article in this link.

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