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    Economic downturn crisis forecast November 2008

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

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Two blasts have rocked saw mills in B.C. in recent times. One in January leveled the Babine Mill (Burns Lake), the other in April destroyed Lakeland Mills (Prince George).

In both cases, unfortunately, there were casualties.

In both cases, the blasts were apparently due to sawdust.

In both cases official inquiries are still ongoing, but the media have been filled with hypotheses and discussions. Reportedly (Globe and Mail, April 27th) “the B.C. Government waited until the second catastrophe this week to issue province-wide guidelines, inspection regimes, deadlines and, possibly, new regulations”. Reportedly (same source) “when an explosion and fire tore through the Burns Lake mill, owners of other mills across the B.C. Interior -including Lakeland- looked at housekeeping and upgrades to address the potential risk (NB: improper technical language: should read potential hazard, the difference is important, see below!) of sawdust explosions at mills working with dry wood killed by pine beetles”; “safety experts noted the potential risk (NB: improper technical language: should read potential hazard, the difference is important, see below!) of sawdust after the January explosion at the Burns Lake sawmill”; “the industry has already been struggling with a massive shift since the mountain pine beetle began the widespread destruction of B.C. Forests”.

Also, the Globe and Mail (April 28th ) quotes Margaret MacDiarmid, the province Labour Minister, saying that “Burns Lake fire had appeared to be unique, pointing to the cold snap in January that had forced the mill to close its windows, increasing the hazard of a dust explosion”.

Out of respect for all parties involved, scientific rigour, we will not discuss the general foreseeability of such an event (Globe and Mail, April 26th reports for example: “in 2009 an inspection report found that Lakeland had not been monitoring worker exposure to wood dust…”), possible explosion triggers, possible preventative actions, post-catastrophe measures, possible responsibilities.

Instead we will focus our attention on some Risk Management points.

  1. Many industries, regulatory bodies, organizations keep confusing “risks” and “hazards”. As far as we know, no risks were formally evaluated for the mills, but hazard inspections, at best, were performed. To use a very simple language, “hazard is something that has potential to go wrong”, whereas “risk is the combination of a hazard with its potential consequences”. The confusion can lead to opposite “equally inappropriate” results:

    a) If the environment is overly optimistic looking at hazards is conducive to reject any preventative action on the basis of “it’s just a hazard like another…we live with them every day”…things will remain as they are until an accident happens.
    b) If the environment is overly pessimistic then excessive preventative actions will be taken, with potential loss of competitiveness.

  2. If risks had been evaluated (properly) instead of just looking at hazards, it would have resulted that a sawdust triggered explosion (due to any reason), and resulting fire, had potential to generate casualties, destroy the plant. Most likely anyone would have considered that event intolerable, and things would have been corrected long ago.

    a) Well balanced regulations are risk based rather than hazard based.
    b) Risk Based Decision Making (RBDM) is a discipline that warrants proper scientific approaches. It is not “improvised”, it requires skills. Methods should be “enforced” rather than resolve to knee-jerk reactions.

  3. When performing Risk Analyses for industries around the world Riskope is often confronted with “long chain” domino effects. From what we have read to date, the explosions’ root causes could both be “climate change” based:

    -pine beetle size and severity of the outbreak and
    -the cold snap

    can indeed be considered somehow linked to the global climate change.

    We do not believe any serious professional would ever be claiming that such a scenario (starting with climate change….down to saw dust explosions) could have been foreseen. However, if during a Risk Assessment site-visit significant volumes of sawdust would have been seen, a fire or explosion scenario would have been generated (not important to define the cause of the dust), potential consequences evaluated, etc. (see point 1,2 above).

    It is time industries start looking at their risks in proper rational ways. Risk Assessment techniques will pave the way to safety, security, competitiveness and long term sustainability.

    A sustainable industry is an industry that can keep working without a break. Avoiding catastrophic accidents is the first step toward sustainability.

Evolution of Risk Management and Risk Managers

Twenty years ago positions like “Risk Manager” were often considered as a “glorified secretarial” positions. We remember some senior corporate officers calling Risk Managers: “the insurance guy”!

Twenty years later, lots of pain and efforts have brought the Risk Manager position to be acknowledged as a V.P. position in many companies around the world. Many Risk Management Societies and non profit organization in the domain of risk management, claim, we believe rightly so, that Risk Managers are the officers that better know their company, and should therefore be embraced, cherished and promised to the shiniest corporate future.

As we have followed and coached/advised some very successful Corporate Risk Managers for two decades now, we might as well tell you another side of the story.

It cost us a lot of effort and convincing to bring our clients to accept that the Corporate Risk Manager (and her/his advisers) should be called in before inception of a project, at early pre-feasibility stages, to avoid the nefarious effects of poor understanding of future risks.

Project teams, often simply too busy to stop and ask the right questions, or simply not skilled in the art of predictive risk management, are oftentimes entangled in conflict of interest (if the project is aborted, they will lose their job, their bonus, after all). They have indeed quite a record of projects turned nightmares for their owners, because of “pain in the neck” type of risks, sometimes bigger accidents and series of quite foreseeable mishaps.

I guess that that battle has now been won, at least with our most clairvoyant clients!

Unfortunately, there is the next one, right here on the table, right now, and it’s a big one!

That new battle is called “cyber risks”.

They are unfortunately considered to be, most of the time, a technical (IT) issue and are kept away from the reach of the Risk Manager.

If on one hand this “exclusion” can be the result of corporate turf wars, where the IT guys hate to see Risk Managers stick their nose into their very own private technological castle, on the other there is a critical reality: as IT has become so pervasive, SCADA and computers (dedicated or not) are so ubiquitous, systems can be linked to internet even if they have been “forgotten” somewhere in the plant, because of maintenance activities etc. the look of the Corporate Risk Manager, a person that asks “silly non tech questions” and possibly has some adviser who asks even more and nastier ones will help limit the chances of a successful attack, and thus profit enormously to the corporation.

If furthermore a program like the one Riskope has designed for a European Ministry of Defence anxious to put in place a holistic cyber country-wide risk management approach is deployed, the least we can say is that corporations will have very seriously increased their resilience, sustainability (in terms of being able to sustain operations in the longer term), and, of course, their competitivity.

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