Tag Archives: Titanic

4 Disasters That Never Should Have Occurred

It’s not easy trying to predict the unpredictable. Yet that’s what risk managers are responsible for doing every day. Sometimes, the plans to identify or protect against a particular disaster come up short. Read on for four of the biggest risk management disasters in history – and how the risk management industry has learned from them.

It’s become an iconic image in pop culture – Leonardo DiCaprio leans in close behind Kate Winslet as she raises her arms and exclaims “I’m flying!”

But what can Kate and Leo teach us about risk management?

Quite a lot, in fact. Thanks to several movies and countless other retellings, the tragedy of the Titanic is something everyone knows. But with a better understanding of some basic risk management principles, the Titanic never would have sunk at all.

Michael Angelina, executive director of the Academy of Risk Management and Insurance at Saint Joseph’s University, uses the Titanic and other notable risk management disasters to give his students a better idea of what exactly risk management is – and why they should care about it.

It turns out some of the most notable risk management disasters had specific causes that create pretty clear lessons for risk managers in a range of industries to learn. Let’s take a closer look at four of the biggest risk management disasters in history and what ARMs and risk managers took from them, starting with the event everyone’s favorite ’90s epic/romance/disaster movie is based on.

The sinking of the Titanic

The shortage of lifeboats on board the Titanic on April 15, 1912, has become a well-known fact representing the arrogance and naiveté of designers, crew members and passengers who were positive the massive vessel was unsinkable. To be sure, pretty much everyone was overconfident, from not giving lookouts binoculars to ignoring warnings from other ships about icebergs in the area.

And while the lack of lifeboats is held up as the primary example of that hubris, the 20 lifeboats actually complied with safety regulations at the time. In fact, only 16 rescue ships were required. Lifeboat capacity was determined by the weight of the ship, not the number of passengers on board. This rule was developed for much smaller ships and hadn’t been updated to adjust for the enormous ships that were built in the early years of the 20th century. What’s more, there hadn’t been a significant loss of life at sea for 40 years, and large ships usually stayed afloat long enough for individual lifeboats to make multiple trips to and from a rescue vessel. For all of those reasons, everyone tragically assumed there were an adequate number of lifeboats for passengers.

The risk management lesson learned: Complying with regulations and established best practices is no guarantee that a specific risk has been effectively mitigated. Risk managers need to consider these safeguards the same way they would any other risk prevention effort and take additional action when they don’t sufficiently guard against risk.

See also: A Revolution in Risk Management  

Deepwater Horizon explosion

When the Deepwater Horizon oil rig exploded on April 20, 2010, several executives from BP and Transocean were actually on the structure to celebrate seven years without a lost-time safety incident on the project. Company leaders were so focused on preventing – and measuring – lesser risks like slips, trips and falls that they failed to identify the more complicated process management risks that ultimately led to the explosion.

Risk management lesson learned: All risk analysis is essentially weighing how likely an event is to occur against what impact that event would have, then identifying effective ways to address those risks. Thanks to complacency, cutting corners, arrogance or some combination of those factors and others, BP and Transocean targeted risks with high probabilities and low impact. In the process, they neglected risks in the opposite quadrant of that matrix that were unlikely to occur but could have catastrophic results.

Sept. 11 attacks

Since the tragic events of Sept. 11, 2001, individuals, businesses and the U.S. government have put vast effort and resources into preparing for and defending our nation against further attacks. Professors of risk management at the University of Pennsylvania call 9/11 a “black swan” event – one that is very rare and difficult to prepare for.

Risk managers are extremely good at preventing what’s happened before from happening again. But unlikely events are extremely difficult to predict. Before Sept. 11, 2001, terrorism was listed as an unnamed peril in a majority of commercial insurance deals, according to Penn researchers. After the attacks, insurers paid $23 billion, and many states passed laws permitting insurers to exclude terrorism from corporate policies. Today, the semi-public Terrorism Risk Insurance Act covers as much as $100 billion in insured losses from terrorist attack.

Risk management lesson learned: These black swan events are difficult to predict and even more difficult to prepare for. A portion of the risk management field will always be reacting to the specifics of previous significant events and incorporating them into their models forecasting future risk.

Financial Crisis of 2007-2008

Plenty of people were quick to blame risk managers for failing to protect the world’s largest financial institutions against the biggest economic disaster since the Great Depression. The Harvard Business Review identified six ways companies fail to manage risk, while the Risk and Insurance Management Society (RIMS) argues the financial crisis was not caused by the failure of risk management, but rather organizations’ failure to embrace appropriate enterprise risk management behaviors. Companies provided short-term incentives and did not communicate enterprise risk management principles to all levels of the organization.

Risk management lesson learned: Risk management cannot exist in a vacuum. Creating a robust enterprise risk management program also requires communicating it to all levels of the organization and creating a culture and incentive system that matches the level of risk.

See also: Can Risk Management Even Be Effective?  

Interested in learning more about risk management? Check out the Associate in Risk Management designation from The Institutes.

What Really Sank the Titanic?

ISO 31000 (Risk Management) and its supporting publications encompass an impressive to-do list of risk management guidelines for organizations. However, if an organization selectively pursues some of the ISO guidelines and ignores others, highly undesirable events — even tragedies — can occur. This is what happened with the Titanic.

ISO 31000, section 4.2, suggests we align risk-management efforts to our objectives. White Star Lines, the Titanic’s builders, fulfilled this requirement. The objectives were to create a luxury liner at the lowest costs, in the least amount of time, and maybe even break the speed record for an Atlantic crossing. These were admirable goals. The Titanic also followed ISO 31000, Section 5.5.1.b., by “taking or increasing the risk in order to pursue an opportunity.” The builders did so because they believed their risks were not extraordinary and could be controlled. This is a common judgment error.

THE PURSUIT OF OPPORTUNITIES, NOT AN ICEBERG, SANK THE TITANIC

The individual risk opportunities that Titanic pursued were not terribly unusual, but collectively they created a perfect storm fueled by three main, linked, cascading risks:

  1. Ship design shortcomings influenced by cost-cutting efforts
  2. Flaws in rivets
  3. Mistakes in the operation and evacuation of the vessel

ISO 31000, Section 5.4.2, warns us that “Risk identification should include examination of the knock-on effects of particular consequences, including cascade and cumulative effects.” The World Economic Forum, in its 2014 Annual Global Risk Report, highlights cascading and connected risks many times as a serious threat. The report also stated the need for better efforts to deal with such threats by supplementing traditional risk management tools with new concepts, methods and tools.

What are cascading risks?

Cascades can be beneficial, neutral or destructive. We define cascading risks as a series of interacting risks that emanate from leadership (aces) through the work culture (kings) and work processes (queens) that create bad performances (jacks) and negative feedback loops (jokers) back to leadership. Leaders then either apply learnings in creative ways or ignore the cascade signals, which can lead to disasters. Detailed cascading risk analysis can aid in minimizing such risks.

Cascade #1 That Threatened the Titanic – Inadequate Design

The Titanic’s design was not unsinkable, as was widely publicized at the time. It had many “watertight compartments,” but they were open at the top, like an ice cube tray. It had far too few lifeboats, a result of cost-cutting efforts during the design phase. It had a double bottom, but that did not extend up to the waterline, where the iceberg sideswiped the ship. This design flaw was quickly corrected on the Titanic’s sister-ship, Britannic, which was still under construction at the time of the Titanic’s sinking.

The Titanic’s builders claimed that it was constructed considerably in excess of the Lloyds registry safety requirements. Therefore, they never saw the need to seek Lloyd’s registry approval. However, Lloyds disputed that claim publicly after the Titanic sank.

Cascade #2 That Threatened the Titanic – Bad Rivets

The Titanic required 3 million rivets to hold her together. Archives tell us that, at that time, there was a shortage of riveters and the necessary materials to create high-quality wrought iron rivets. White Star’s competitors converted to 100% steel rivets, which were much stronger.

The Titanic used steel rivets in the straight section of the hull but not in the front, where the iceberg hit — wrought iron rivets were easier to rivet by hand than steel rivets in those sections. The recovery of the Titanic’s wreck from the sea floor confirmed the low quality and brittleness of the rivets in the impact areas. Higher-quality rivets would have kept Titanic afloat longer and saved more passengers.

Cascade #3 That Sank the Titanic – Operation and Evacuation Errors

The Titanic was cruising near top speed, which was very risky on a moonless night through an area with active iceberg warnings. Just hours before the disaster, the captain canceled a lifeboat drill for no apparent reason. It was suspected that the captain was attempting to break a cross-Atlantic speed record. That recklessness and the collision with an iceberg sealed the Titanic’s fate. Her brittle rivets in the impact area popped off and allowed water to rush into the hull. The Titanic sank in less than three hours. 1,502 people perished after a disorganized evacuation filled the far-too-few lifeboats to just 61% of capacity.

Conclusion

Although ISO 31000 attempts to protect us from ourselves and the outside world, we cannot be selective in what we implement. We need to follow all of the guidelines and even test areas that we believe are safe. We must also heed ISO’s challenge to examine cascading and cumulative effects. Effective risk-based thinking must include cascade effect thinking.