Risk Management Video: How to Rank and Manage Hundreds of Risks
Risk management can be a complex endeavor. It becomes even harder when there are a multitude of risks to consider. How do you do it?
It is not sufficient to simply identify what risks are lurking out there. You need a tested and systematic method to evaluate the identified risks.
Risk Management Video: How to manage a multitude of risks.
Having evaluated your risk, you put them into a ranked order. Only then will you be in an excellent position to control not only a multitude of risks, but the most important risks.
The bottom line is this: Using this systems approach, you can rationally begin to trade benefit against risk—and feel morally free. No longer will you have the haunting suspicion that you have overlooked a major risk, one that could come back and bankrupt your business.
Let's look at an example of a public transportation project with a multitude of risks.
A busy METRO station during afternoon rush hour. Photo courtesy of WMATA.
The multibillion-dollar subway system in Washington, D.C., known as METRO, was still in the early stages of design when Congress, among others, urged the Washington Metropolitan Area Transit Authority (WMATA) to address METRO risks in common-corridor operations with Chessie System rail traffic.
WMATA had decided at the outset of the project—without considering attendant risks—that it would be more economical to route the METRO tracks in existing railroad rights-of-way than to condemn, buy, raze, and clear desired properties. Since METRO is primarily a series of city-to-suburb linkages and Washington already had rail lines approaching from all directions, the decision seemed a good way to save money. Those savings, however, might easily be erased if certain credible accidents were to occur.
Consider these risks. The right-of-way in most cases is adequate for two parallel Chessie tracks, but when those two had to be spread open to allow two additional METRO tracks, the two systems then pass each other at a minimum distance (nine-foot track centerlines). The METRO operates at a maximum speed of 75 miles per hour (mph), while the top speed for Chessie trains is 60 mph, so the two trains could pass each other at 135 mph! METRO cars weigh one-tenth what some Chessie cars may weigh when loaded. At rush hour, the METRO can operate at two-minute intervals. There is no direct communication between METRO and Chessie trains, so they can warn each other of any trouble only through a time-consuming linkage with two other parties. A second loaded METRO train could easily impact a Chessie-METRO accident that had occurred only two minutes earlier. Chessie trains carry ammunition and other hazardous cargoes, and if a METRO, conceivably carrying 800 passengers, should collide with one of them, the death toll could exceed that of the worst aviation disaster.
To manage risks in the creation of Washington's METRO system, approximately 200 risk scenarios were written, evaluated, and ranked into a "Hazard Totem Pole". Photo: 1974 Construction at DuPont Circle, courtesy of WMATA.
In March 1974, the prime contractor for METRO assembled a five-person Board of Consultants to evaluate and control common-corridor risks. The contractor’s general manager, who also served as Board chairman, specifically selected and employed the systems-based approach.
Approximately 200 risk scenarios were written, evaluated, and ranked into a "Risk Totem Pole". Preventive actions were adopted on the basis of the Risk Totem Pole ranking, and they totaled more than $25 million.
Whether the decisions you must make concerning risk are in a small proprietorship or in a major project like the Washington METRO, you will have a solid framework upon which to base those decisions.
This post includes excerpts from Vernon Grose's Managing Risk.
Omega Systems Group Incorporated is a Washington-based consulting firm that identifies, ranks and manages risks -- systematically. Business Week has described OSGI chairman Vernon L. Grose (left) as a "founding father" of the application of systems methodology to managing risk.