Global Risk Agility and Decision Making: Organizational Resilience in the Era of Man-Made Risk

439 Pages·2016·8.92 MB·English

by  Daniel Wagner

Daniel Wagner and Dante Disparte
GLOBAL
RISK
AGILITY
AND
DECISION
MAKING
Organizational Resilience in
the Era of Man-Made Risk
Global Risk Agility and Decision Making

Daniel   Wagner • Dante   D isparte
Global Risk Agility and
Decision Making
Organizational Resilience in the Era of
Man-Made Risk
Daniel Wagner Dante Disparte
Country Risk Solutions Risk Cooperative
USA USA
ISBN 978-1-349-94859-8 ISBN 978-1-349-94860-4 (eBook)
DOI 10.1057/978-1-349-94860-4
Library of Congress Control Number: 2016946025
© Th e Editor(s) (if applicable) and Th e Author(s) 2016
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Printed on acid-free paper
Th is Palgrave Macmillan imprint is published by Springer Nature
Th e registered company is Macmillan Publishers Ltd. London
Th is book is dedicated to everyone who devotes their time and energy to
managing the nexus between man-made and natural risk. It is you who
ultimately control our collective long-term destiny.

Preface
Th is is a book about survival. Having the ability to discern between perception
and reality can make the diff erence between making the right moves on the
global business chessboard and moving forward, or making a critical mistake.
Gone are the days when the job of successfully managing the turbulent waters
of international business was the domain of just a risk manager. In a world
that has become increasingly defi ned by unpredictable events with severe and
lasting consequences—and where those consequences can impact an orga-
nization’s ability to survive—it is e very manager’s job to be a risk ‘n avigator ’.
What is required to be an eff ective risk navigator is not a degree from a
good business school, completing the latest round of continuing education,
or relying on twenty years of experience in a chosen fi eld. Rather, what is
required today is the ability to know a l ot about how the world works—how
it really works—and to be able to t hink, not just about the impact of an
event on this quarter’s bottom line, but, more importantly, about an event’s
current and long-term impact on a trading, investing, lending, or operating
landscape.
Doing so is, of course, no simple task. It requires a commitment to being
informed, to understanding the implication of an event or action, and to con-
stantly thinking “outside the box” about what it all means. Th e idea is not to
be reactive, but rather, to be p roactive and a nticipatory . A typical international
organization does not practice “ Anticipatory Risk Management” . Instead, it
relies on information from a third party that must fi rst be delivered before
it even knows there is a problem. Th en, it may not have either the person-
nel or tools in-house to interpret the information. Finally, it may not have
a decision-making process in place that eff ectively incorporates the result of
that interpretation, so that it is transformed into meaningful action.
vii
viii Preface
I f your fi rm is a small or medium-sized organization and fi ts this mold,
you are not alone. Some of the largest and most sophisticated organizations
on the planet also suff er from this malady. Operating in more than 100 coun-
tries and having hundreds of thousands of employees does not necessarily
translate into being prepared to operate eff ectively internationally. It is often
the case that these fi rms believe themselves to be invulnerable as a result of
their global presence. As we will see, they are indeed vulnerable, on many
levels. Th ere is also an inherent vulnerability by remaining on the sidelines
of engaging, investing, and operating around the world. Th e masters of risk-
ready enterprises that stand to dominate the twenty-fi rst century will take to
the turbulent waters of global trade and integration, recognizing all the risk
implied in this endeavor.
The Illusion of Effective Risk Management
To illustrate just how vulnerable, consider the state of security in commer-
cial aviation today. Since the beginning of the War on Terror, many billions
of dollars have been spent (and continue to be spent) on putting into place
a security protocol that methodically screens passengers to identify threats
before a plane pulls back from the gate. Of course, this has greatly reduced the
perceived risk of a terrorist threat on a typical commercial fl ight. However, it
has not eliminated the threat, nor has it prevented unanticipated threats from
emerging, nor does the system function as it should.
D espite all the time, eff ort, and money thrown at the problem, in 2015 there
remained some truly signifi cant gaps in the system. Some 14 years after the War
on Terror began, the United States (U.S.) Department of Homeland Security’s
(DHS) Offi ce of the Inspector General was able to successfully transfer mock
explosives or banned weapons through airport security screening systems in
the U.S. 95 percent of the time, by deploying teams intending to do just that.1
It was not until 2009 that the Transportation Security Administration (TSA)
required that just 50 percent of the cargo placed inside commercial aircraft in
the U.S. be screened for explosives2 (today it is 100 percent).
As a result of logistics and the cost implied, in 2015 only two major U.S.
airports made comprehensive employee screening part of their operational
1 J . Date et al., “Undercover DHS Tests Find Security Failures at U.S. Airports,” ABC News, accessed
June 1, 2015, accessed November 24, 2015, http://abcnews.go.com/ABCNews/exclusive-undercover-
dhs-tests-fi nd-widespread-security-failures/story?id=31434881 .
2 C. Berrick, Transportation Security Administration Has Strengthened Planning to Guide Investments in Key
Aviation Security Programs, but More Work Remains, U.S. Government Accountability Offi ce, accessed
July 24, 2008, accessed November 24, 2015, h ttp://www.gao.gov/assets/130/120883.html .
Preface ix
protocol,3 meaning that all other major airports in the country do not do so.
Also in 2015, another DHS investigation found that the TSA had failed to
identify 73 employees of airlines, airport vendors, and other employers with
active clearance badges who had links to terrorism.4 In other words, the TSA
was sanctioning the employment of individuals with terrorist links to work in
roles that could endanger the public.
Hundreds of billions of dollars, tens of thousands of people, and numerous
congressional mandates have only created the i llusion of eff ective airport secu-
rity in the U.S. today. If someone wanted to bring an aircraft down—inside
the U.S.—he or she could. Th at is exactly what happened in 2015 with the
Russian Metrojet crash in the Sinai Peninsula, the result of a bomb having
been placed in the aircraft at the Sharm El-Sheik (Egypt) airport5 —the third
successful bombing of Russian commercial aircraft post-9/11 (the two previ-
ous bombings occurring in Russia in 2004). 6 If the devotion of these kinds of
resources has resulted in such gross inadequacies in the system, does a business
stand a chance of creating a better mousetrap? Some risk is never ‘managed’
out of existence, but merely tamed, creating a placebo eff ect—as in the minds
of the traveling public that the system is in fact safer than it really is.
The Unforeseen Versus the Unknown
One thing no one can predict, and therefore no one can control, is the
unknown. It is worth distinguishing between the ‘unforeseen’ and the
‘unknown’. Th e diff erence is that what is u nforeseen is not necessarily some-
thing that was unknown, but rather was not predicted or anticipated. By con-
trast, what is u nknown is ambiguous and a mystery, so it cannot be predicted
or anticipated. We cannot do much about what is unknown, precisely because
there is no way to quantify or understand it. Th e most we can hope to do is
‘manage’ the risks associated with the unforeseen, by anticipating those risks.
Herein lies the distinction between risk and uncertainty. Risk can always be
3 S. Kerry, “Closing an Airport Security Gap: Airport Screening,” Wall Street Journal, accessed January 27,
2015, http://www.wsj.com/articles/closing-an-airport-security-gap-employee-screening-1422396346 \ .
4 T. McCay, “Th e TSA Has Been Letting a Lot of People with Links to Terrorism Work at Airports,” news.
mic, June 9, 2015, accessed November 24, 2015, http://mic.com/articles/120393/the-tsa-has-
been-letting-a-lot-of-people-with-links-to-terrorism-work-at-airports .
5 Th e bombing occurred even though the following security advisory had been issued in March 2015 by
the U.S. Federal Aviation Administration, strongly advising against traveling into, out of, or over the
Sinai below 26,000 feet. See Federal Aviation Administration, Advisory for Egypt Sinai Peninsula, accessed
November 24, 2015, h ttps://www.faa.gov/air_traffi c/publications/us_restrictions/media/FDC_5-9155_
Egypt-Sinai_Advisory_NOTAM.pdf .
6 Timeline of Airline Bombing Attacks, Wikipedia, 2015, accessed November 24, 2015, h ttps://en.wikipe-
dia.org/wiki/Timeline_of_airliner_bombing_attacks .