Critical Risks of Different Economic Sectors: Based on the Analysis of More Than 500 Incidents, Accidents and Disasters

277 Pages·2020·3.238 MB·English

by  Dmitry Chernov, Didier Sornette

Critical Risks of
Diff erent Economic
Sectors
Based on the Analysis of More Than
500 Incidents, Accidents and Disasters
Dmitry Chernov · Didier Sornette
Critical Risks of Different Economic Sectors
(cid:129)
Dmitry Chernov Didier Sornette
Critical Risks of Different
Economic Sectors
Based on the Analysis of More Than
500 Incidents, Accidents and Disasters
DmitryChernov DidierSornette
ChairofEntrepreneurialRisks ChairofEntrepreneurialRisks
ETHZürich ETHZürich
Zürich,Switzerland Zürich,Switzerland
ISBN978-3-030-25033-1 ISBN978-3-030-25034-8 (eBook)
https://doi.org/10.1007/978-3-030-25034-8
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Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 SpecificFeaturesofRiskManagementintheIndustrial
andAgriculturalSectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Mining,OilandGasExtraction. . . . . . . . . . . . . . . . . . . . . . . . . 13
GeneralDescriptionandKeyFeaturesofSubsector
andIncorporatedIndustries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 15
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 15
2.2 Manufacturing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
GeneralDescriptionandKeyFeaturesofthisSubsector
andIncorporatedIndustries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 60
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 60
MistakesinProductDesign. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
CrisesInducedbyLow-QualityProductionProcess. . . . . . . . . . . 70
SabotageandUnauthorizedProduction. . . . . . . . . . . . . . . . . . . 75
CrisesInducedbyNegligenceintheSafeOperation
ofManufacturingSites. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
RegularMinorInjuriesandIsolatedDeathsofWorkersDue
toViolationofHealthandSafetyRulesonProductionSites. . . . 77
SupplierErrorsandFailuresinSupplyChains. . . . . . . . . . . . . . 81
GovernmentalRegulationandGeopoliticalConflicts. . . . . . . . . . 83
OtherCrises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
v
vi Contents
2.3 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
GeneralDescriptionandKeyFeaturesofthisSubsector
andIncorporatedIndustries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 91
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 92
TechnicalFailuresonUtilityInfrastructure. . . . . . . . . . . . . . . . . 92
Shutdowns,AccidentsandBlackoutsDuetoExternalNatural
Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
BlackoutsDuetoPoliticalInstability,Wars,Clashes
andOthers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
RegulatoryChanges(EnvironmentLegislation,Technological
Breakthroughs,Etc). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
OtherCrises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
2.4 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
GeneralDescription,KeyFeaturesandIndustriesIncluded
inthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 121
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 121
2.5 Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
GeneralDescriptionandKeyFeaturesoftheSector. . . . . . . . . . 129
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 131
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSector. . . . . . . . . . . . . 131
3 SpecificFeaturesofRiskManagementintheServiceSector. . . . . . . 147
3.1 Trading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
GeneralDescriptionandKeyFeaturesofthisSubsector. . . . . . . 147
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 148
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 148
3.2 Transportation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
GeneralDescriptionandKeyFeaturesoftheSubsector
andIncorporatedIndustries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Contents vii
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 158
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 158
3.3 HotelsandRestaurants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
GeneralDescriptionandKeyFeaturesofthisSubsector. . . . . . . 177
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 178
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 178
3.4 InformationServices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
GeneralDescriptionandKeyFeaturesoftheSubsector. . . . . . . . 187
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 187
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 188
3.5 Telecommunications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
GeneralDescriptionandKeyFeaturesoftheSubsector. . . . . . . . 202
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 204
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 204
3.6 FinancialandInsuranceServices. . . . . . . . . . . . . . . . . . . . . . . . 212
GeneralDescriptionandKeyFeaturesofthisSubsector. . . . . . . 212
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 213
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 213
3.7 ProfessionalServices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
GeneralDescriptionandKeyFeaturesoftheSubsector. . . . . . . . 229
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 230
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 230
3.8 ScientificResearchandEducation. . . . . . . . . . . . . . . . . . . . . . . 237
GeneralDescriptionandKeyFeaturesoftheSubsector. . . . . . . . 237
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 238
viii Contents
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 238
3.9 HealthCare. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
GeneralDescriptionandKeyFeaturesofthisSubsector. . . . . . . 244
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 245
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 245
3.10 EntertainmentandSportsActivities. . . . . . . . . . . . . . . . . . . . . . 252
GeneralDescriptionandKeyFeaturesoftheSubsector. . . . . . . . 252
CriticalSuccessFactorsforanOrganizationWithin
theSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
StakeholdersinthisSubsector. . . . . . . . . . . . . . . . . . . . . . . . . . 253
TypologyofCommonRisks,MainFeaturesofMajorAccidents
andRiskMitigationMeasuresWithintheSubsector. . . . . . . . . . 253
3.11 OtherServices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
4 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
4.1 DifferencesinRiskProfilesandRisk-MitigationMeasures. . . . . 263
Production(IncludingAgriculture). . . . . . . . . . . . . . . . . . . . . . . 263
Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
4.2 FromDifferencestoSimilarities. . . . .. . . . . .. . . . . .. . . . . . .. 268
Chapter 1
Introduction
There is an increasing trend towards the generalization of theories and solutions.
Politicians try to impose political models and solutions—which may have worked
wellinsomecountries—inverydifferentsocietieselsewhere.Managementtheorists
take what they see as good practice from leading companies in one country and
propose universal solutions to millions of other organizations worldwide. MBA
programs train universal managers capable—on paper at least—of running any
company.
However, in practice, we see the disastrous consequences of such a generalized
approach in many spheres. Hundreds of millions of people have suffered or died,
victimsofsocialengineeringexperimentsthatimposedalienpoliticalideasonwhole
countriesandevenregions,andbroughtwholesaleeconomicorsocialdevastation.
Companies have faced collapse and bankruptcy because they tried to implement
“modern”and “universal”managerial ideas without regard for thereadiness ofthe
market,the“businessculture”inthatregionorlocallawsonbusinesscompetition.
Inrisk management, there has beena similartrend, where solutionseffectivein
oneindustry(mainlyderivedfrominsurance,financeandheavyindustry)havebeen
transferred to the practice of organizations working in entirely different fields
[1,2,3,4]. This generalization of risk management solutions originates from a desire
for systematization: risk management experts seek to establish universal strategies
1John J. Hampton,Fundamentals of Enterprise Risk Management. HowTop Companies Assess
Risk,ManageExposure,andSeizeOpportunity,SecondEdition,AMACOM,2009
2Riskculture.UndertheMicroscope,TheInstituteofRiskManagement,2012,https://www.theirm.
org/media/885907/Risk_Culture_A5_WEB15_Oct_2012.pdfandRiskculture.ResourcesforPrac-
titioners, The Institute of Risk Management, 2012, https://www.iia.org.uk/media/329076/firm_
risk_culture_-_resources_for_practitioners.pdf
3ExtendedEnterprise:Managingriskincomplex21stcenturyorganizations,TheInstituteofRisk
Management, 2012, https://www.theirm.org/media/1155369/IRM-Extended-Enterprise_A5_AW.
pdf
4MarciaClemmitt,Issue:CrisisManagement,SageBusinessResearcher,February9,2017
©SpringerNatureSwitzerlandAG2020 1
D.Chernov,D.Sornette,CriticalRisksofDifferentEconomicSectors,
https://doi.org/10.1007/978-3-030-25034-8_1
2 1 Introduction
and a standardized approach for all enterprises based on effective, successful and
logicalsolutionsfromalimitednumberofindustries[5,6,7,8,9].
Toillustratethenatureoftheproblem,wenow brieflyoutline fourexamplesof
disastrousfailuresindifferentindustryareas.Insodoing,wewouldliketoaskour
readers a simple question: “Is it possible that one risk executive/risk manager/risk
specialist during her or his career could adequately manage the risks of all the
following companies and effectively bring to an end the consequences of the
followingcalamities?”
Ourfirstexamplecomesfromretailmanufacturing.Thecompanyistheleading
smartphone producer in the world, with a market share of 20–25% of all global
smartphoneshipment.Billionsofcustomershaveuseditsphonesformanyyearsand
trustthebrand:theywillsticktoitwhenupgradingtheirphone,andrecommenditto
relativesandfriends.Then,thecompanyreleasesanewsmartphone,butbeforelong
ahundredcustomershavefoundthattheirphonescaughtfireduringrecharge.The
problem affects less than 0.1% of the entire volume of new phones sold. But even
suchanapparentlyinsignificantpercentageofincidentsshouldnotmisleadanyone:
sincethecompanysellstensofmillionsofdevicesglobally,onewouldstillexpect
tens of thousands of fires, not only at home but during car journeys or even air
flights.Thenear-universalpenetrationofsocialmedia—andtheactionsofcompet-
itorsinsomemarkets—makeeachfirecaseawidelypublishedevent,damagingthe
brandintheeyesofpotentialcustomersandthreateningtheloyaltyofexistingusers.
Finally,underpressurefrombothregulatorsandthewaveofnegativepublicity,the
companymakesarecallofallthepotentiallydefectivedevices.Therecallcoststhe
companyseveralbilliondollars;butitprotectsthebrandinthelongtermbyputting
anendtopublicdiscussionofthefiresinthedefectivemodel,whichwerecastinga
shadowoneverymodelproducedbythebrand.
Oursecondexampleisfromheavyindustry—fromoilandgasextraction.Theoil
company in question is one of the major energy producers in the world. One of
its production success stories isoffshore drilling inaparticular oil-rich region.For
overtwodecades,thecompanyhasseennosignificantaccidentsduringdeepwater
drilling. The company then embarks on an exploratory well to a depth of
6500–1500mbelowsealevelandafurther4000mbeneaththeseafloor.Thestakes
are high: the proven reserves of this field are 110 million barrels, with a potential
revenueofaroundUS$10billion.Butbecauseofunexpectedlychallenginggeolog-
icalconditions,thedrillingteamissoonrunning43daysbehind scheduleand$58
5RiskManagementStandard,IRM,2002
6ISO 31000:2009, Risk management – Principles and guidelines, International Organization for
Standardization
7AstructuredapproachtoEnterpriseRiskManagement(ERM)andtherequirementsofISO31000,
AIRMIC,Alarm,IRM,2010
8KatelynSmith,BestPracticesforEffectiveCorporateCrisisManagement:ABreakdownofCrisis
StagesThroughtheUtilizationofCaseStudies,CaliforniaPolytechnicStateUniversity,2012
9EnterpriseRiskManagement,AligningRiskwithStrategyandPerformance,ExecutiveSummary,
CommitteeofSponsoringOrganizationsoftheTreadwayCommission,June2016edition