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    Economic downturn crisis forecast November 2008

    Contact us to know details on economic downturn crisis forecast

    graphic results of economic downturn crisis forecast November 2008

    Economic Downturn Magnitude and Duration Quantitative Study by Riskope (http://www.riskope.com), November 2008

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A chocolate package can make you lose a fortune!

Crises are generally defined as decisive moments, particularly in times of danger or difficulty. Times of danger or difficulty can arise because of various hazards, i.e. of natural, man-made (voluntary or involuntary) and public opinion/media type, hitting the organization or the system under consideration.

Any hazard type can generate harm, losses, i.e. consequences, which can be limited to physical losses, or evolve into image related damages. These last ones are sometimes more difficult to fix, especially if a corporations ends up looking like an arrogant monster that “could just come in and throw lots of its money at a problem that was more than just a money issue…” (Albrecht, 1996).
Sometimes poorly managed issues, or poor risk communication, can lead to trigger public opinion/media hazards, like boycotts, blockades of facilities, strikes, media campaigns etc.
In studying potential for crises one has to remember that “instead of the past determining the present (the historic approach), future is colonized by risk, and therefore determines the present.” What that means is that we cannot only look at the past (statistical approaches) to predict the future.

A vivid example of a “new crisis” is a relatively recent “Chocolate Scandal” in Switzerland. A major (world renown) food company, famous for a celebrated chocolate brand, sold in the same identical package since decades decided to mandate a worldly renowned architect and designer to repackage the brand. As soon as the new, very attractive, space-age package was on the shelves of supermarkets people responded with a double outcry. On one hand they had lost their beloved traditional package (a classic type of crisis), and on the other, the new package was an environmental monster, due to its volume, and not recyclable (“new” type of crisis).
What was born as a show-off design and marketing turned out as a loss estimated at 24% of the annual sales volume.
A simple equation for your thoughts: Future does not generally coincide with the past, and as we move forward they will diverge more and more! Beware.

New flu: Tora! Tora! Tora! may not be the best way.

Smoky souvenirs

The man in front of me was very elegant, had impeccable manners, if only he had been smoking less. His corner office in the Tokyo HQ of his corporation, was indeed slowly delivering to its occupants, including me, an unbreathable cocktail of fine dusts and nicotine-tar loaded particles that probably still stains my lungs today.

We had been discussing how my company (Riskope) could deliver to his organization emergency planning, crisis management in that difficult time, during the 2003 SARS outbreak. They had operations all over the world, including China.

The green tea, brought in by a very nice secretary, kneeling down in front of us in compliance with long to die traditions, was helping me to endure the chemical attack. I was at my third cup, and the man was telling me how each one of their expatriate managers and their families in continental China was critical for operations.

When I asked if they had crisis management/emergency planning in place the man replied swiftly: “No”, and sipped another little green tea, lighting another sigarette.

I immediately asked him, frankly mesmerized: “…But, what will you do, if the worse happens and your managers and/or their families fall sick there?”

The reply came down as a dagger: “…Then we will send in the second wave!”

What has changed between 2003 and today?

Well, as far as I can see, not much: there are still organizations who sit totally unprepared and will decide later what to do, when, may be, the bulk of their personnel will be home infected with the new flu.

That’s not precisely the way a responsible corporation/manager prepares to a very likely hazard which may bring in serious risks!

An epidemic is a crisis: a crisis like another, and “survival techniques/rules” exist.

The first step is to systematically anticipate and respond to threats. Crisis-prepared companies suffer fewer disasters and recover more quickly than crisis-prone firms. They also stay in business longer and are more profitable.

To be one of those long term survivors recognize the barriers preventing foreseeing risk scenarios:

psychological biases, information silos, prestige and arrogance.

Develop formal risk assesments and crisis/emergency plans.

Then, if and when risks become reality, follow your pre-defined plans, contain the crisis by acting decisively and quickly.

As a reminder: the SARS Outbreak (2003)

SARS (Severe Acute Respiratory Syndrome) was a pneumonia like illness that claimed more than 50 victims across Asia. In February 2003, this disease spread to Hong Kong: of the 1,755 people who were infected, 299 died.

The disease raised questions about tech companies’ operations in Hong Kong, similar to the issues raised by an earthquake that shook Taiwan in 1999. That quake severely disrupted manufacturing at the Hsinchu industrial park south of Taipei, and in the process created shortages of graphics chips, memory chips and other components necessary for building personal computers and laptops. Personal computer makers took a indirect but rather significant hit from that quake.

As Asian authorities scrambled to contain the outbreak of SARS, citizens in the region reportedly turned to the Internet and mobile communications to protest public health policy and spread word of traditional Asian remedies for the deadly virus (Maunder et al., 2003).

The SARS outbreak in Toronto, which began on Mar. 7, 2003, resulted in extraordinary public health and infection control measures.

In a 4-week period, 19 individuals developed SARS, including 11 health care workers. The hospital’s response included establishing a leadership command team and a SARS isolation unit, implementing mental health support interventions for patients and staff, overcoming problems with logistics and communication, and overcoming resistance to directives. Patients with SARS reported fear, loneliness, boredom and anger, and they worried about the effects of quarantine and contagion on family members and friends. They experienced anxiety about fever and the effects of insomnia. Staff was adversely affected by fear of contagion and of infecting family, friends and colleagues. Caring for health care workers as patients and colleagues was emotionally difficult. Uncertainty and stigmatization were prominent themes for both staff and patients (Skowronski et al., 2005).

Short Courses

On April 14th 2010 Franco is invited to give a half-day long short course at a mining conference in Santiago de Chile.
More information here (in Spanish)

Similar short courses (customized to your company’s needs) can be organized world-wide, or you can opt for a remote-education solution, as explained here (in English).

In February 2010 there will be a 3×2.5hrs webcast by Cesar and Franco, organized by Edumine, from Vancouver. Let us know if you are interested.

Examples of courses contents

Link between the so called financial and non financial risks .

Unified transparent approach to R&CM.

R&CM have evolved from an “after the fact” implementation into a “pre-feasibility” exercise, and decision making support tools.

Evolution of Qualitative, Quantitative approaches in Risk Assessment.

Example of recent and well knowns crises, disasters.

History of some critical decisions examples.

Discussion of various common behavioral biases.

Quantifying the losses for a better grasp on reality.

How to present risks in a clear and transparent way avoiding the “overwhelming syndrome”.

Various risk representations are intuitively presented, as they apply to real life case studies.

Lesson learned from past experience.

How you could use your risk management program to get the most value for you and your company.

Real cases about CDA/ESM applications.

Balangero Asbestos Tailings Dump case study.

KISS approach to Risk Based decision making.

Crisis models and management.

Crisis Management…prediction of depth and duration of economic turmoil.

One world, 16 common human traits

As a Risk & Crisis Manager working all over the world supporting corporations, governmental agencies and individuals in their decision making and alternatives selection process we have learned that we, human beings, share very strong and significant common traits, despite the apparent huge differences contributing to make our world such a colorful and wonderful place.

We are neither psychologists nor sociologists, so we will leave the discussion related to the origins of these common traits to those specialists.

However, we feel it necessary to dress a list, to raise awareness, as we believe that the world would be a better place, and more importantly that we would build a better future if we were to modify our behavior in these areas.

To make it simpler and clearer we will not describe the traits themselves, but compile instead a list of typical phrases that reflect those traits. The list is split in four categories, A to D, describing the situation in which a person “normally/unfortunately” generally comes out with a phrase (I have included four examples per category) corresponding to a trait that we should modify.

So, for example: WHEN….A) People are made aware of a hazard (something unpleasant that could happen to that person), they GENERALLY REPLY:

  1. oh, yeah, I know, but that will not happen to me…because I know better, I am lucky, It has never happened before….
  2. well, it has happened last year/in the last five-ten years, so we are good for a while.
  3. actually we had a security system for that, we we turned it off, as the alarm was scaring off people…and you see, no accident has happened yet!
  4. Risk assessment are only there to scare people with huge accidents that never happen.

WHEN …B) Something has gone wrong (could very well be the same guys of the list above), they GENERALLY REPLY:

  1. what a bad luck, gee…
  2. I cannot understand how this happened, we had it all under control until then!
  3. Well you know, the alarm did not work that well
  4. we should do a risk assessment right now.

WHEN …C) Decision are to be made (could very well be the same guys of the lists above), they GENERALLY REPLY:

  1. You can do all of the analyses you want, at the end, I will make the decision, following my instinct/my gut feelings, and other body parts or particular garments’ areas: it has never failed me before.
  2. I can see pros and cons and my decision will take all of those into account: you know, I have always taken calculated risks
  3. Man, when you are an entrepreneur, you know you have to take risks
  4. You know, we have the experience to deal with whatever will come up in this project

WHEN ….D) Contemplating project’s fiasco, failure to perform, bankruptcy, they GENERALLY REPLY:

  1. What happened is unprecedented, unforeseeable, how could we have….
  2. Well, there were so many uncertainties, what a pity…
  3. Well we tried with all our best people and invested all that money, …well, you know, sometimes the best intentions….
  4. We had done it so many times, others have done it, how come it did not work?

We are sure you can dig out examples you have heard about (or you may have lived as an actor), where these or other similar phrases were used by one or more stakeholders.

For instance the Subprime fiasco and resulting economic turmoil, generated at least the following statements among Bankers, politicians and affiliated professionals:

A1, A3, A4, B1, B2, B3, B4, C1, C2, C3, C4, D1,D2,D3,D4.

You may have noticed that the only one missing is A2 “well, it has happened last year, so we are good for a while”. BEWARE: when the next bubble blows up, A2 will most certainly be in the list.

Are we pessimistic? Please do not get that very wrong impression. All our work, our life is geared towards getting people, corporations, governmental agencies to turn to rational risk and crisis management, to perform risk based decision making, to establish their risk tolerability and enhance their chances of success. Approaches and methods scalable for small to huge businesses and projects do exist and I use them every day for my clients.

Quelques détails sur l’ “identification des dangers”

Identifier les dangers pour évaluer les risques

Une évaluation des risques (ER) efficace nécessite initialement l’identification des dangers ou des modes de défaillance potentiels. Ainsi le développement d’une phase d’identification des dangers (ID) de haute qualité est fondamentale pour la qualité de toute l’approche de gestion des risques (GR).

Donc, une ER complète doit se baser sur une ID minutieuse prenant en compte tous les types de dangers et les composants affectés existant sur un site ou un lieu particulier. Pour être efficace, ID doit être systématique, envisager un grand éventail de scenarii, même ceux qui paraissent à première vue «un peu fous» tout en accommodant les aspects spatiaux et temporels de chaque site considéré.

Gestion des risques pour optimiser vos allocations

Une fois implanté, un système global et intégré de gestion des risques (GR) permet l’identification des secteurs (géographiques ou économiques) dans lesquels les organisations sont les plus vulnérables. Ainsi, elles peuvent optimiser leurs allocations de fonds d’assainissement de façon parismonieuse et équilibrée.

…et pour communiquer mieux

En plus, l’application de la GR peut améliorer de manière spectaculaire la communication des décisions aux employés affectés, aux gestionnaires, aux investisseurs, aux régulateurs et au public. Lors de la communication du risque au public, les niveaux véritables de risques sont souvent moins important que l’attention portée aux niveaux de risque perçus.

Recher méthodique de scenarii et modes de défaillance

De nombreuses installations industrielles ou étatiques (réseaux routiers, de transport etc.) sont construites sur de longues périodes de temps avec une main d’œuvre changeante, et habituellement avec des critères de conception évoluant avec le temps.

Afin d’évaluer autant de modes de défaillance que possible, une série de modes de défaillance potentiels doit être identifiée, autant que possible sur la base de données historiques et de la créativité des analystes (souvenez vous que le futur n’est jamais une reproduction conforme du passé). Les modes de défaillance peuvent généralement être identifiés comme modes de défaillance élémentaires et modes de défaillance composites. Les modes de défaillance élémentaires sont ceux qui ne peuvent pas être subdivisés et incluent, par exemple, une évaluation de la probabilité qu’une conduite se casse à la suite d’une défaillance mécanique. Un mode de défaillance composite est un mode qui résulte d’une série de modes de défaillance élémentaires possibles.

Les meilleurs plans et systèmes sont mis en échec s’ils ne couvrent pas les scenarii de danger et de risque qui s’abattront sur un site.

Utilisons les glissements de terrain comme un exemple, mais il y en a tant d’autres...

De nombreux glissements lents actifs (en mouvement quasi continu allant de quelques millimètres par an à quelques décimètres par an) sont connus et repertoriés dans l’arc alpin. Ces phénomènes ont des impacts potentiels parfois très élevés tant au niveau de communautés qu’à celui de certaines industries (transports, énergie, tourisme) et font l’objet de programmes de recherché poussés.

Un de ces glissement était déjà sous monitoring en Octobre 2000 et présentait un comportement lent, sensible aux variations de pluviometrie. Les conséquences d’une éventuelle rupture d’équilibre avaient été définies comme extrêmes, puisque une obstruction de la valée sous-jacente pouvait se produire, suivi par une rupture qui pourrait entraîner une avalanche de boue de grande intensité frappant de plein fouet un village en aval.

L’importance d’observer, effectuer un monitoring

La vitesse de déplacement, évaluée grâce au monitoring, peut être utilisée comme critère d’alerte et comme critère pour définir la fréquence des mesures afin de mieux pouvoir prévenir ou dater un potentiel événement catastrophique.

Les vitesses de déplacement enregistrées au cours d’octobre et novembre 2000 montrent clairement qu’au pire de la crise, ces vitesses étaient bien supérieures à celles définies comme critiques dans la littérature spécialisée, ce qui correspondait donc à un niveau d’alerte et demandait une surveillance journalière, ce qui était le cas.

En fonction des déplacements et des vitesses le plan de protection civile fut déployé correctement, mais l’intesité de l’avalanche de boue et sa genèse furent si differentes de la prévision, que malgré tous les efforts des victimes furent à déplorer.

Douloureuse conclusion

Il résulte donc évident que les meilleurs plans et systèmes peuvent être mis en échec si les scenarii de danger et de risque ne couvrent pas le dangers et risques qui s’abattront sur un site. Cette constatation renforce donc la nécessité de recourir à des experts dans le développement de scenarii pour créer des études de risques locales ou régionales qui couvrent, avec la meilleure fiabilité possible l’ensemble des aléas potentiels

Easy way to defining probability of a fire in a residential area of Vancouver

Countless times we have heard “…but we have no statistics!” or “statistics cannot be gathered for this specific topic!”, with the usual conclusion that a proper risk assessment cannot be performed because of the “lack of statistics”.

We think this is a good excuse to avoid looking at reality with a better eye, and, unfortunately the result of Statistics and Probabilities being taught usually at the same times in schools.

Probabilities and Statistics

Probabilities and statistics are two separate sciences, but people tend to forget that!

Lack of data, expensive research, inability to gather numbers etc… should never be a barrier to do a proper quantitative risk analysis, especially since such a study requires ranges of values or orders of magnitude of the probabilities, not absolute, unique “fatally wrong” numbers.

Years ago, in the Book“Improving Sustainability through Reasonable Risk & Crisis Management” (F. Oboni & C. Oboni ISBN 978-0-9784462-0-8) we introduced a methodology geared towards defining probabilities DIY based on judgemental/empirical expertise/knowledge.

The following micro-case-study will show how good guided thinking can deliver an evaluation of the range of probability of an event without using statistics. Then we will use statistics ( we purposely selected a case study where statistics do exist) to derive the “precise magic number” and compare it with the evaluation.

Why are we doing this?

Because we want to show you that Risk Based Decision Making is not only available to monster global companies, but can be used by everyone, including individuals like you and me..

Fire Hazard in Kitsilano, Vancouver

The other morning I was walking to get my coffee and saw yet another firetruck and an ambulance next to a burning house. That made me wonder what is the probability of a fire in Vancouver, actually in my neighborhood, or a square of let’s say 1km by 1km.

Using the book methodology

I have witnessed at least a serious fire every year for the last 3 years, which leads to the VH category of probabilities, but because of the wide spread fire alarm program and construction codes the houses are in a state that can be defined as G to F despite most structures are wooden and flammable materials are present.

Thus, following the Methodology the probability of occurrence of a fire in my neighborhood next year can be estimated at value between 1.5×10-1 and 2.5×10-1 (one chance in seven to one chance in four for a fire to occur).

Using National Statistics

Fire Injury per 100,000 Population in Canada in 1999 was 5.

Population in metropolitan Vancouver in 1999 was 558,138.

Metropolitan Vancouver has a surface of 114.67 km2

Population density can therefore be derived at 4870 hab/km2

We can thus compute the frequency of a fire injury per year per km2 as 0.24 in Vancouver.

I can now compute the probability of having a fire injury in my neighborhood next year ( I will not enter into the details of the calculation, as it would scare a few, but if you are interested just ask) at p=0.19 (or appx. one in five).

So, the book methodology to not only lead the right order of magnitude but a safe evaluated range of the estimation in a couple minutes of work, and with no statistics.

Needless to remind that broad estimation of the range of probabilities are what we need to perform risk assessments and support risk based decision making. Using ranges is safer than using falsely precise numbers, and estimating risks is better than walking blindly!

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