Federal Government as Risk Manager

From Bloomberg: Washington Needs to Embrace Its Role as Ultimate Risk Manager. Get over it, Mitch McConnell. Our government has to manage the risk of a pandemic, and it needs to get better at it.

The actions that the federal, state and local governments in the U.S. have taken to stop the spread of the new coronavirus and to mitigate the resulting economic fallout have been tagged with the term “unprecedented” a lot over the past few weeks. In sheer scale and speed, they are. But government’s role as risk manager in a crisis isn’t new at all. It dates to the beginnings of the nation.

Book Review: “The Future of Risk Management”

Review of The Future of Risk Management

Editors: Howard Kunreuther, Robert J. Meyer, and Erwann O. Michel-Kerjan
Publisher: University of Pennsylvania Press, June 2019.  ISBN: 0812251326 eISBN: 9780812296228; Pages: 416; hardcover price $79.95.

Contributors: Mona Ahmadiani, Joshua D. Baker, W. J. Wouter Botzen, Cary Coglianese, Gregory Colson, Jeffrey Czajkowski, Nate Dieckmann, Robin Dillon, Baruch Fischhoff, Jeffrey A. Friedman, Robin Gregory, Robert W. Klein, Carolyn Kousky, Howard Kunreuther, Craig E. Landry, Barbara Mellers, Robert J. Meyer, Erwann Michel-Kerjan, Robert Muir-Wood, Mark Pauly, Lisa Robinson, Adam Rose, Paul J. H. Schoemaker, Paul Slovic, Phil Tetlock, Daniel Västfjäll, W. Kip Viscusi, Elke U. Weber, Richard Zeckhauser.

Reviewer: Irmak Renda-Tanali, D.Sc. is a risk management specialist and Editor-in-Chief of the Journal of Homeland Security and Emergency Management.

This new book is a collection of essays that shed light on the future direction of risk management from a multi-disciplinary perspective. It is written by leading thinkers in risk management. The authors come from the disciplines of finance, geography, history, insurance, marketing, political science, sociology, and decision sciences. Each chapter is written by a different author. The discussions are based on many years of research conducted by the authors.

The book is organized in five parts, each covering a different feature of risk.

Part one is about risk behavior. It specifically covers the behavioral aspects of risk which include psychological and cognitive factors that affect decision making under risk, and also risk-taking behaviors. The authors cover risk perceptions, risk-taking behaviors, how behavioral and analytical models can help with future risk-taking attitudes and choosing risk mitigation measures. They discuss nonrational psychosocial risk behaviors such as psychophysical numbing (insensitivity to large numbers of deaths), pseudo inefficacy (being deterred from helping one person because there are so many others that also need help), and the predominance effect (disconnect between the stated values and the values revealed by one’s actions).

Part two focuses on the improvement of risk assessment, including topics such as the use of models to set baseline risks and measuring progress against them;  learning from past experience in making future risk decisions both from a personal perspective and from community and country perspectives; how transparent leadership can help mitigate systemic risks that are of concern for industries by recognizing changes and advances in regulation, technology, and business models and making effective decisions; and advances in achieving economic resilience through cost-benefit analyses in risk-mitigating measures.

Part three covers the topic of risk communication. The discussion focuses on how better risk communication strategies can be built, especially by using stakeholder engagement; how more efficient warning mechanisms can be created; and how the accuracy of geopolitical risk assessments can be improved. The seven-point scale for expressing uncertainty recommended by the US intelligence community is put under examination in risk accuracy improvements. Part three also covers risk acceptance, especially in regard to consumer product regulations, and suggests ways to improve consumer understanding of product features and/or ingredients to make informed decisions in taking risks.

Part four covers risk mitigation, with specific emphasis on natural hazard insurance as a risk transfer mechanism. In this part, the role of insurance in risk management is for natural disasters is discussed with an emphasis on future policies. The role of the public sector in the face of catastrophic risks is scrutinized with special emphasis on affordability and with recommendations about incentivizing the insured with emphasis on the investment in mitigation. The complementary roles for both public and private sectors in the insuring mechanisms are discussed as well.

Part five looks ahead in risk management policies with topics like public-private partnerships, how insurance markets can be regulated under catastrophic risks and concludes with a chapter on suggesting a way forward for the government’s role in disaster relief in the U.S.

The book’s contribution is its fresh perspective on the current state and future predictions of risk management across the board, bridging the gap between industry risks and natural and human-induced disasters. Many books focus on either the disaster risk or on industry/business risks but fall short of making the connection between business risks and disaster risks. This book, with the top-notch experts providing research-based insight into the key areas of risk, provides a refreshing account of better ways of understanding, quantifying, communicating, mitigating, and managing risk across many different domains and operations.

The title captures the spirit of the book – The Future of Risk Management – which is not specific to any domain but underlines the global challenges in assessing and acting on the risks that have far-reaching ramifications than previously thought. In today’s increasingly connected world, this book successfully captures the state-of-the-art challenges and opportunities that lie ahead for managing risks that may trigger far-reaching catastrophic losses. I recommend it for educators and practitioners who specialize in disaster risk assessment, from an organization to enterprise to sector and all the way to local and state level risk assessments.


Book Review: “Mastering Catastrophic Risk”

Book Review of Mastering Catastrophic Risk: How Companies Are Coping with Disruption by Howard Kunreuther and Michael Useem, Oxford University Press, 2018

Reviewer: Edward Thomas, Esq; President of Natural Hazards Mitigation Association

This is a truly excellent book which explains through a combination of insightful analysis, based on their years of research; and real world examples, based on interviews with major corporate thought leaders,  how major corporations are actually dealing with the ever changing and ever increasing foreseeable, unforeseeable and unforeseen risks to companies, their reputations and their employees. The authors, who have produced individually and as a team numerous other excellent books on risk management artfully weave their analysis together with these real world examples then produce action orientated and specific checklist of actions corporate managers can take to learn from the experiences of other companies in such a way as to protect their companies from future disruptions due to natural phenomena such as hurricanes and tsunamis as well as terrorist incidents.

 Managing Catastrophic Risk does a particularly excellent job of showing how far huge, Fortune 500 type, European and United States corporations have come in Risk awareness and institutionalizing the internal corporate infrastructure to deal with risk management.

However, it is also quite clear from reading the book that those major corporations are just now beginning to get serious about truly facing the reality of changing and growing risks and preparing to deal with those risks; the authors do not discuss preparations by small businesses and government at any level. Kunreuther and Eseem suggest that one of the principal manners in which business can successfully deal with risk is moving from short sighted intuitive thinking to much longer term thoughtful deliberative thinking; including devoting the necessary time, attention and resources to think about long term risk. Such thought process may well be difficult for increasingly resource starved governments and for small businesses barely struggling to survive. When one considers that small businesses account for fully one half the employment in the United States, and since 1995 have created over sixty percent of the new jobs in our Nation, we need, as a Society, to be extremely concerned about how well these small businesses and local governments are going to perform in understanding risk and dealing with it.

I strongly recommend this book for both the casual reader who wishes a better understanding of how large businesses are dealing with risk, as well as for use by those who wish to begin a deep dive in Risk Management. Leadership in corporate excellence and those who wish to begin to understand the awesome challenge we have dealing with the mounting risk posed by natural and human casused disasters to our Nation and to the World.

For those of you who think they do not have time to read the book, the excellent news is that the authors were interviewed for a really fascinating discussion of the high points of the book on a Wharton School produced podcast. That 23 minute podcast is available [without charge] online at: http://knowledge.wharton.upenn.edu/article/companies-prep-natural-disasters/

If the podcast does not get you sufficiently interested to read the book, Wharton has also produced an excellent four page issue brief that quite neatly captures some, but by no means all the most important, actionable points of this excellent book. That four page Issue Brief is available on line at: https://riskcenter.wharton.upenn.edu/wp-content/uploads/2018/06/Mastering-Catastrophic-Risk_Kunreuther-and-Useem_summary_2018.pdf

The online magazine Working Capital Review has also produced a very short summary of the book, based on material from Oxford University Press. That short summary is available at: http://workingcapitalreview.com/2018/06/disasters-corporate-catastrophe-checklist/



“The Science of Preparing Cities for Natural Disasters”

This article provides a review of the new book The Cure for Catastrophe: How We Can Stop Manufacturing Natural Disasters, by its author, Robert Muir-Wood. He is the CEO of Risk Management Solutions.  Worth reading and considering his negative views of emergency management as presently conducted.  Some excerpts follow:

If you want to understand what really drives the risk and what you need to do, it comes down to planning decisions. It comes down to building codes and their enforcement, and avoiding corruption in how the building-code process functions, because the building sector is typically the most corrupt sector of any country. The level of corruption, we know, correlates quite strongly with casualties in disasters.

To make all this happen we need to really educate people about their risks — improving risk literacy so that people understand the need for warnings and the need for evacuation procedures. There are lots of things that a city leader can do to get their city to be resilient. It involves really engaging with people and educating them about the risks .

Flood Risk Changes Likely by Region

From Homeland Security Newswire: Flood risks changing across U.S.

The risk of flooding in the United States is changing regionally, and the reasons could be shifting rainfall patterns and the amount of water in the ground. Engineers determined that, in general, the threat of flooding is growing in the northern half of the U.S. and declining in the southern half. The American Southwest and West, meanwhile, are experiencing decreasing flood risk.

In a new study, University of Iowa engineers determined that, in general, the threat of flooding is growing in the northern half of the U.S. and declining in the southern half. The American Southwest and West, meanwhile, are experiencing decreasing flood risk.