Governments and businesses around the world have not learned much from the 9/11 attacks, Hurricane Katrina, the Icelandic volcano ash cloud, or the Fukushima meltdown, according to a hard hitting new report from Chatham House, “Preparing For High Impact Low Probability Events”
The report says that despite considerable efforts to improve scientific understanding and reform risk management approaches, governments and businesses are still insufficiently prepared to confront HILP (high impact, low probability) crises and effectively manage their economic, social, political and humanitarian consequences.
The report is published a few days before the World Economic Forum releases its annual Global Risks Survey, which in turn is a curtain raiser for the WEF’s widely-reported Davos meeting of global leaders.
Part of the problem, Chatham House says, is that current thinking on contingency planning assumes the return of the status quo after a crisis. That’s not always going to be the case, the report argues, in a world of complex, interconnected economic and social risks – especially when combined with “slow-motion” crises, like climate change and water scarcity.
Accepted national risk management structures that are based on classifying events by tiered levels of threat and implementing specific contingency measures should be reconsidered and new startegies put into practice. Clear frameworks for crisis decision-making should be based on risk matrixes that categorise risks by common consequences.
Such an approach would differentiate between events that require a generic response (such as earthquakes or floods) and those that require a more specific response (such as pandemics) the report says.
Like most Chatham House studies, the report is worth checking out for its reasoned arguments. I’ll restrict myself here to reproducing the key recommendations it makes:
* Industry bodies and safety regulators should work in coordination with governments and businesses to stress test risk-related practices in critical infrastructure sectors and to examine whether policies reflect the real costs and risks associated with future infrastructure decisions in worst-case scenarios. This should be supported by interactions – before, during and after an event – between scientific advisers and national civil contingency agencies to ensure that decision-making during a crisis is based as far as possible on scientific and technical evidence.
* “Red-teaming” HILP scenarios with key decision-makers (politicians as well as agencies) is essential to enhance preparedness in coping with the unexpected. A multi-sector voluntary agreement on participation in planning, exercises and crisis response should be established, led by governments and industry. Transport and communications are two priority sectors, as they are critical in any crisis response. These scenario-building exercises can also help identify particularly affected social groups and countries to enable rapid financial and practical support where national organizations are unable to cope or where the consequences are cross-border in nature.
* Sharing best practice and, where relevant, capacity, especially among industrial sectors and governments. There are a limited number of cross-cutting responses to the consequences of a crisis (rapid technological ‘fixes’, evacuation, treating sick people, communications systems etc.), compared with hundreds of potential risks. Company-led and sectoral responses are especially critical when it comes to highly technical issues or engineering failures.
* Emergency preparation and response mechanisms should be transparent and subject to public accountability. Governments should introduce a requirement for competent authorities to conduct post-crisis impact assessments. These would consider how crisis decisions were taken, the basis of risk decision making processes and the consequences (positive and negative) for the environment, society and economy. This would both help ensure continuous improvement in future crises, and enhance the transparency of risk-based decisions to the public.
* All actors, especially regulators and government bodies, should step up planning for communications in a crisis including a robust website (for example, a ‘dark site’ prepared in advance but only made available to the public when a crisis hits). National science institutions should work together to develop, strengthen and promote effective guidelines for the communication of scientific and risk-related information for media and science institutions during a crisis, reflecting the new opportunities and challenges presented by social media.
* There should be independent, high-quality hubs (national or regional) for up-to-date risk notification and provision of scientific information in a crisis – supported by governments, businesses and industry associations – that are critical scientific institutions that can be expected to play a role in future crises. For example, a one-stop centre should be created to aggregate information and advice from official sources with information provided by individuals via social media networks. This would become known in advance as the go-to place in a crisis for stakeholders, with enhanced capacity to meet huge increases in traffic during a crisis.
* Governments should work with the insurance industry to set up a global pooling system for reinsurance to address future disruptive events and review existing arrangements regarding the provision of state support to businesses during HILP events. Although state aid can fulfil a vital role in alleviating paralysis during and immediately following an event, concerns remain around issues of anti-competitiveness legislation and market distortion.
* A multi-disciplinary reference library for quantifying the impact of shocks should be established in relevant international institutions such as the World Bank or the International Monetary Funds. Analysts can systematically build up a library of observations that can be drawn on when preparing for similar shocks in the future. Mistakes made in impact studies can also be used to improve predictions, creating a more reliable reference system to provide faster and more accurate analysis when faced with recurring events, and to improve policy planning.
* The private sector needs to invest additional resources in training and investment in ‘business resilience’, supported by governments, especially for small businesses. A new international standard for preparedness and continuity management systems (ISO 22301) for organizations is due to be published in spring 2012. In parallel, governments could also promote the ISO mark across industry and the public. This would help ensure a competitive advantage for those demonstrating a commitment to robust business continuity management.
* Businesses should undertake cost-benefit analysis of options such as shifting to regional hubs and storage centres for non-perishable goods to avoid urgent intercontinental transportation. While transport risks will be more difficult to overcome for perishable goods trade, in some instances different packaging and storage methods may permit delivery by land and sea instead of air. Indicators of business resilience should be developed that can actually be audited or reported on and passed on to stakeholders or the stock market, to bolster incentives for investing in resilience.