The days when InfoTech staff could hunker down behind the data center doors and feel safe are long gone. History.

Ditto the days when an organization's business continuity planner could tick off a set of standard risks such as power failure, fire, flood, and perhaps vendor failure.

In the "old days," a ripple effect was like tossing a pebble into a still pond; something to be considered, but limited in impact. Today, it is more like a huge earthquake in the bowels of the ocean; the ripples are now a tsunami waves that impact distant shores.

Narrow vs. broad view

Risk management practitioners have a choice of views as they consider global risks.

The narrow view, a view taken by too many, is to focus on the risk du jour: e.g., the financial troubles and the current pandemic.

The broad view is to understand that threats can come from all points of the compass and as fast as a jet plane flies.

The broad view also is to understand that a threat that happens to someone else can impact your organization.

An organization need not be international in scope to suffer when another organization continents away hiccups. A Mom-n-Pop business in rural anyplace can find itself between the same anvil and hammer as a multi-national conglomerate in a metropolis. The Mom-n-Pop and the multi-national conglomerate may respond differently to the threat: the Mom-n-Pop may be able to react faster and more efficiently but the multi-national may be able, as an "800 pound gorilla," to marshal resources that would not consider dealing with the Mom-n-Pop operation.

For all that, both the Mom-n-Pop and the multi-national are linked by the same spider web of interdependency.

Lenders as vendors

Consider a simple money issue.

A builder near Washington DC - this is a true story, by the way - had a contract with the federal government to build an office building. There is a deadline in the contract that the builder must meet. Failure to meet the deadline and the feds will implement the contract's penalty clause and the builder will be paying the government for each day the building remains unfinished.

The builder started the project with a promise from a lender - a/k/a money vendor - that the contractor had a sufficient line of credit to buy the materials and pay for the labor to build the building.

Such arrangements are pretty much Standard Operating Procedure (SOP) in the building - and many other - industry.

At the beginning of the builder's project the nation's economy seemed in good shape.

We, along with the builder and the lender, discovered that rather than a healthy economy, we had one wheezing and staggering from a long-hidden illness: valueless paper created by greed.

The lender suddenly discovered its backer lacked funds to lend. Since the builder's lender was suddenly unable to meet its commitment to the builder, the builder was unable to buy materials and services and to pay the trades people.

Tsunami effect

Mom-n-Pop expected to sell a substantial quantity of materials to the builder. Since the contractor was well known and had multiple multi-million dollar projects, Mom-n-Pop already lined up its suppliers, including a few outside the country.

Locally, the builder is forced to lay off personnel; if building materials are absent, why have people stand around being paid for doing nothing?

The laid off personnel go on unemployment compensation which normally is a pittance of what they bring home in their regular pay check.

The hard hat's spouse goes into Squeeze-the-Nickel-'til-the-Buffalo-Bellows mode and all luxuries are put on hold and "economies" are made. The planned remodeling of the bedroom into a den is shelved (probably just as well since Junior, who used to sleep in that room, just announced he lost his job and he's coming home "just 'til he finds a new job")

The local contractor, who hired his nephew in anticipation of the hard hat's remodeling job, has to furlough the nephew (and face his sister's wrath).

Meanwhile, over at Mom-n-Pop, the folks are busy cancelling orders for both domestic and foreign materials the builder cancelled.

Which means, Mr. Kim cancels his contract with his raw materials supplier and the dominos in the layoff chain continue to fall.

That seems a long way from the hard hat's mortgage which, it turns out, caused the worldwide financial collapse. (It was sold and resold and packaged with other mortgages that may be less trustworthy than the hard hat's, and probably resold again, each time at a discount.)

When pigs fly

A couple of years ago risk management practitioners were dealing with Bird Flu, H5N1, then the headline threat.

We hurried and scurried to "get ready" for a threat that, while still a threat at some level, never developed into the pandemic everyone feared. (It still could develop in to the feared pandemic, and smart risk management folks will hang on to, and maintain, all the work that went into The Pandemic Push.)

We were told "the flu will come in several waves." No one predicted where the waves would originate. China was, and remains, the most frequently cited starting point, but even if it is, which way will the birds fly? East? West?

With the advent of H1N1, Mexico's contribution to the world of maladies, we now know that (a) the influenza will come not as waves but as individual incidents. H1N1, misnamed "Swine Flu," travelled at the speed of flight to diverse points in the US and the world, stopping some places and skipping others.

No waves.

H1N1's tsunami impact, like the money vendors, takes its toll worldwide.

The very name, albeit a misnomer, caused a drop in some countries' hog markets.

There was a time not so long ago that a drop in the market price of milk led to the wholesale slaughter of dairy cows which in turn left feed-and-seed stores with unsold good, veterinarians with unused vaccines, and dairies without milk.

Today's risk management practitioner must anticipate both the threat and the impact, both direct and indirect, the threat will have on the organizations - all organizations from the business to the family (or perhaps the family to the business).

It no longer is sufficient to "think local."

Interdependencies abound and are not bound by business or locality or even national borders.

John Donne was right back in the early 17th century when he wrote his Meditation XVII.

Several centuries later, some of us still fail to understand we all are part of a worldwide web - not the Internet variety, but the relationship variety.

Successful enterprise risk management practitioners take Mr. Donne's words to heart.

 



 

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John Glenn, MBCI, has been helping organizations of all types avoid or mitigate risks to their operations since 1994. Comments about this article, or others at http://JohnGlennMBCI.com/ may be sent to Planner @ JohnGlennMBCI. com.