Recent catastrophes such as the Fukishima Daiichi Nuclear Power Plant crisis, the Costa Concordia cruiseliner crash and the BP Macondo oil well explosion have highlighted the importance of effective risk management. The companies involved all employed modern technology and competent, ethical peopleÑyet their prevention systems failed.
We asked an group of 22 experts on business and risk why prevention systems fail, and they collectively identified four primary barriers to the prevention of catastrophe in organizations: (1) the failure to perceive risk, (2) leadership failure that causes risk blindness, (3) production pressure, and (4) organization and team culture that blocks information about risks.
And, yes, these barriers exist even in organizations that have implemented solid risk management systems. Identifying these hurdles and assessing how they may affect your organization is the first step to overcoming them.
1. Failure to Perceive Risk
Risk identification is not nearly strong enough in most organizations. Almost 50% of responses cited the failure to perceive risk as a key barrier to preventive action. A number of factors make catastrophic risk difficult to perceive. Catastrophes are rare and thus often outside of people's experience. Additionally, the causes of catastrophe are complex, involving several failures, which are often in more than one technical or organizational system. The expert group acknowledged these challenges but identified five key issues that blocked adequate perception of catastrophic risk.
Inadequate Risk Assessment Systems and Processes
Poorly conceived or implemented risk management systems can keep people blind to the magnitude of risk. This may be due to a lack of resources, separating risk assessment from operations personnel, or a "lack of understanding of risk management systems."
People who are focused on the short term can be blind to most catastrophic risks and to the benefits of preventive action. There may be a "management view that the problem will not occur on my shift," or perhaps "everybody is looking for quick wins but not correcting systemic issues."
Normalization of Deviance
Defined as "accepting the unusual as normal," this happens partly because "things have been like that for so long that people don't see them." If "it worked fine last time," this becomes the standard and "experienced personnel pass these habits on to younger personnel as 'on the job training.'"
Complacency was defined as "the belief that real catastrophes occur elsewhere, rarely occur in our business and are just plain bad luck." A few people said that complacency came from the lack of personal or institutional experience with catastrophe; others pointed out that the low frequency of catastrophes led to low attention to the issue.
"Teams tend to focus on what their specific scope is." The narrow focus keeps teams blind to the "ripple effect of decisions" and keeps responsibility diffuse for any issue that crosses team/organizational borders. In this situation we think that "someone has done the obvious" and dismiss the potential risk.
2. Production Pressure
Preventive action is perceived to both delay implementation of projects and increase costs. Nearly a quarter (24%) of responses identified excessive production pressure as a key barrier to preventing catastrophe.
"You can't do preventive action and meet targets." The pressure to produce short-term results will overwhelm preventive action if this pressure is too strong. Two important areas of concern were emphasized by the expert group.
Delay to Schedule
"It takes time to plan," and "it takes time to look at root causes," and many people think this delays implementation rather than improves reliability. One person pointed out that real preventive action may require "a radical modification in the way a corporation functions" and this may get in the way of meeting deadlines.
Cost of Preventive Action
For the most part, "preventive actions are seen as a cost rather than a cost savings." This is a major impediment to overcome since companies see it as difficult to measure the benefit of preventive action, largely because "it is only when these measures fail that tracking is possible."
3. Leadership Failure
Everything starts at the top. Senior leaders set the tone for preventive action, and in many companies, especially with the pressure to meet quarterly earnings forecasts, this tone is not always favorable. More than a quarter of our responses (27%) indicated leadership failure as a key blockage to preventing catastrophe. A lack of "sincere support" from leaders makes it very difficult for people to take action to manage risk. In general, the expert responses fell into the following two groups.
"Lack of buy-in, particularly from senior management" can create a substantial block to preventive action in the organization. This may stem from "weak management who cannot comprehend the risks," "lack of operational experience," or "lack of technical skills or background." The wrong "tone from the top" may produce "unclear expectations and lack of accountability," and/or the "lack of an open political environment for people to raise issues or offer opposing views."
Flawed Management Systems
Preventive action can be blocked by "lack of a cohesive set of standards and procedures," and a "lack of clear accountability, discipline and strategy" as well as other poorly implemented management systems. In addition, "if individual behaviors are not aligned, then preventive action by individuals is compromised." It is also pointed out that problems occur when you have "multiple companies within the project without clear definition of contractual links and responsibilities."
4. Organization and Team Culture
"Being the bearer of bad news is not popular." Flawed organizational and team cultures can make it very difficult for people with the right information about catastrophic risk to speak up. In situations where dissent and contrary opinions are not encouraged, people won't be told about issues until it is too late.
Poor Two-Way Communication
Signals won't reach the right person when two-way communication is broken. This can happen because of "selective listening by the leaders and not allowing challenging views," and "team leadership/management feels threatened if it appears they didn't anticipate all issues."
With so much critical work done in teams, poor team processes can imperil preventive action. Failure to share knowledge within the team, cultural differences leading to communication problems and the absence of team accountability were identified as key barriers. Groupthink was also identified as a team problem, "if a strong individual thinks this will never happen, then people may be afraid to admit that they believe it to be a higher risk."
George Campbell is the founder and principal of Fall Line Systems, Inc., a catastrophe prevention consulting company in Calgary.
Dr. Anne Kleffner is associate professor of risk management and insurance at the University of Calgary's Haskayne School of Business.Risk Management Magazine and Risk Management Monitor. Copyright 2013 Risk and Insurance Management Society, Inc. All rights reserved.