MyCIMA

Did you have volcanoes in your risk register?!

Replies : 10
Category: Risk management
Keywords: risk management
Gillian Lees's picture
I've heard a number of folks asking whether many organisations had listed volcanic eruptions on their risk registers.  Well, it's a fair bet that most hadn't.  Even airlines, which I'm guessing would be well aware of the risks of volcanic ash to their jet engines, would have been doing well to identify a risk event along the lines of 'unpredictable Icelandic volcano, Eyjafjallajökull, erupts and leads to the complete closure of airspace for at least six days and very possibly more'.

This got me thinking about current conventional risk management which is broadly along the following lines: identify risks, assess their impact and probability and then develop risk responses.  There's nothing wrong with this but there's a question of how specific you need to be when you are identifying risks.  Some risks are very simple - take for example, the risk of the office building being destroyed by fire and it's perfectly reasonable to have this on your risk register. 

However, in the quest to pin down all the possibilities, you have to bear in mind the danger of ignoring anything that you haven't managed to identify.  You have to avoid the tyranny of the risk register!  Instead, you might have to accept the fact that you simply can't identify everything to the nth degree - and nor should you try as you could spend so much time on risk management that you forget to run the organisation in the first place!  This is an example of where risk management itself becomes a risk to the organisation!

What you can do is leave a gap on your risk register for the'unknown unknowns' simply to remind yourself that you can't identify every possible risk out there.  You can also generate a scenario resulting from an unknown cause that has a serious impact on your business and then think about how you can deal with it.  Different events may have similar effects, so for example, rather than a volcano, the risk event could have been a major problem with oil supplies which would have also grounded aircraft.  One response would include lobbying the government for financial assistance.  The important thing is the process of thinking through 'what would we do if..?'

Which leads me to some advice that I received many years ago from a risk expert.  At the time, I worked in what was then called the NatWest Tower in the City of London and it had just been damaged seriously by a bomb.  Only days before the explosion, we had been working on NatWest's risk management programme.  The risk expert said that you could have lots of systems and programmes in place, but when it came to major 'risk events' like explosions, volcanoes and the like, by far the most important thing was to have staff who were resilient and resourceful enough to deal intelligently with any crisis.

And finally, if you are stranded anywhere, I do hope that you get back to where you need to be soon.

Paranoia

I might be being a little paranoid, but I do tend to consider the imminent threat of natural disaster every time I venture out of my house.

But seriously, a very interesting blog and makes a good point...

Food for thought

 

Intersting reading especially for some of us invlved directly in the issues of risk management.The article tells us one thing that they will always be risks that we will not realise are eminent until they happen.Henc as risk mamangers I think it is important that we note of the 'unknown unknowns' and at leat have a general way of handling such rather than leaving everything to chance.

Interesting article gillian.Where can a get information particularly on operational risk management? 

 

Information sources

Hi Chileshe

As a starting point, you could check out the CPD resources on the CIMA website at http://www.cimaglobal.com/Members/CIMA-Professional-Development/CPD-resources/.  Another search engine is the IFACNet which you can access through the web site of the International Federation of Accountants at www.ifac.org.

Happy searching. Best wishes

Gillian

Thanks

 

Thanks Gillian.I will search from those sites.

A question of cause and effect

The specific cause of an unpronounceable Icelandic volcano is a long way down the list of likely events. Therefore, firms need to focus on the effect on their business of a circumstance, rather than agonise over the sequence of events that could bring the catastrophe about.

The effect of closing airspace was a foreseeable event, indeed it already happened less than 10 years ago! Organisations that rely on airspace being open, such as airlines and courier firms, would find themselves without excuse if they failed to plan for such a contingency, even if in some cases the only thing to be done was to maintain sufficient cash reserves to see them through.

Re: Cause and Effect

I think Timothy Green's point is a very good one - I would certainly support this method of running a risk register, by looking at the business effects of a risk than trying to enumerate every single possible risk.

Vaskor Basak ACMA

Cause and effect continued

I think you're both right!  The key message is to approach risk management in a way that is going to help you run the business rather than getting too bogged down in trying to list everything.  The other problem that I have come across is getting too obsessive about categorising the risk, so for example, arguing over whether a risk is operational or environmental. 

Best wishes and keep the comments coming.

Gillian Lees 

Those pesky unknown unknowns

Gillian,

I'll second your statement about resilience.

Those unlikely events keep turning out to be more frequent than we imagine or plan for. Nassim Nicholas Taleb has written a great book which helps to think about improbable events - The Black Swan.  It is particularly good  at exposing our risk hang ups and inconsistencies.  One all risk managers should have read.

 

Ivor Middleton

ww.fdpo.co.uk

 

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