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StrategicRiskand

MarineShipping
Presentedtothe
MITInternationalShippingClub
25April2014
MarineShipping
AllwedoismovestufffrompointAtopointB.
SomeBackground
Ref:Wikipedia
IntheMiddleAgestheterm risicum wasusedinhighlyspecific
contexts,aboveallseatradeanditsensuinglegalproblemsofloss
anddamage.
Itbecamewidespreadininsurancecirclesinthe1970swhen
majoroiltankerdisastersforcedamorecomprehensiveforesight.
ManyDefinitions
Risk:Productoftheconsequenceandprobabilityofa
hazardouseventorphenomenon.
ISO31000:theeffectofuncertaintyonobjectives [positive
ornegative]
DefineRisk
Riskistheeffectofuncertaintyonobjectivesand
theexpectationssurroundingthoseactivities;
objectivesandexpectationscanbebothrealand
perceived.
Luckfavorstheprepared
EdnaMode,TheIncredibles,Disney/Pixar(2004)
RiskProcess
RiskIdentification
RiskAssessment
RiskManagement
RiskManagementTools
Avoidance
Transfer
Mitigation
Adaptation
Acceptance
Avoidance
RiskisNEVERTransferred
RiskisLOANED
Mitigation
Adaptation
Ilaidmyheartopentothebenign
indifferenceoftheuniverse.
TheStranger,AlbertCamus
Acceptance
TypesofRisk
Occupational
Process
SystemorStrategic
Therearemanydefinitions
SystemorStrategicRisk
WhereOrganizations,SystemsandPeople
mightormightnotworkasexpected.
UnmanagedRisk
Risksthatarenotacknowledged.
Sometimesfoundasaresultofgapanalyses
Sometimesfoundwithinforward/backwardsearchesresultingfroma
tell.
UnmanagedRiskiswhenthereareactionsbeingtakenandtheconsequencesare
notbeingconsidered.
Objective
Multilensviewoftheenvironment.
Addsclaritybydecreasingemotionand
separatingfactfromfiction.
Advocating quantitative tools with better understanding of
the relationships
FiveConceptApproach
ValueAssessment
Leadership,ManagementandCommitment
WickedProblem
RiskUnderstandingandResponseCapability
KnowledgeSharingandEthics
Concept1:ValueAssessment
McKinsey 7-S Model
Source: HuffingtonPost/KATC
Concept1:ValueAssessment
Concept2:LeadershipandCommitment
Copeswith
Ambiguity
Leadership Leadership
Copeswith
Uncertainty
Management Management
HappyTalkor
theDeal?
Commitment Commitment
Concept2:LeadershipandCommitment
Source: Rvongher
A cavalier attitude can attract a brutal audit.
Concept3:WickedProblem
The world is messy.
But multiple, structured views help us make sense of it.
Source: Woods Hole Oceanographic Institution
Ref: Torkel Soma, Blue-Chip or Substandard (2004)
Perspectives
Ref: UKHSEReport113,OperationalSafetyofFPSOsShuttleTankerCollisionRiskSummary,preparedbyNorwegianUniversityofScienceandTechnology
Everythingisconnected
CharacteristicsofWicked
Problems
1. Thereisnodefinitiveformulationofawickedproblem
2. Wickedproblemshavenostoppingrule
3. Solutionstowickedproblemsarenottrueorfalse,butgoodorbad
4. Thereisnoimmediateandnoultimatetestofasolutiontoawicked
problem
5. Everysolutiontoawickedproblemisaoneshotoperation
Ref:Rittel andWeber,DilemmasinaGeneralTheoryofPlanning.(1973)
CharacteristicsofWicked
Problems
6. Wickedproblemsdonothaveanenumerable(oranexhaustivelydescribable)setof
potentialsolutions,noristhereawelldescribedsetofpermissibleoperationsthat
maybeincorporatedintotheplan
7. Everywickedproblemisessentiallyunique
8. Everywickedproblemcanbeconsideredtobeasymptomofanotherproblem
9. Theexistenceofadiscrepancyrepresentingawickedproblemcanbeexplainedin
numerousways.Thechoiceofexplanationdeterminesthenatureoftheproblems
resolution
10. Theplannerhasnorighttobewrong
Ref:Rittel andWeber,DilemmasinaGeneralTheoryofPlanning.(1973)
OceanRanger
Imagination
Concept3:WickedProblem
The world is messy.
But multiple, structured views help us make sense of it.
Source: Woods Hole Oceanographic Institution
Concept4:RiskUnderstandingandResponseCapability
Satisficing orfollowingminimumregulationsisoftennotenough.
RiskAssessment
Source: Excelerate Energy,Website(14May2013)
RiskAssessment
8000BC
3000BC
1000AD
1912
Blah, blah, blah
We have calculated the risk of loss of containment
from a collision at 1 x 10
-4
events per year.
blah, blah, blah
Concept4:RiskUnderstandingandResponseCapability
Consequences
Concept4:RiskUnderstandingandResponseCapability
Source: Titanic(1997),ParamountPictures
Concept5:KnowledgeSharingandEthics
EthicsofHardball
Portfolio,notindividual
KnowledgeSearchandTransfer
CombatsBlindSpots
CombatsFogofWar
DetectsDrift
Decisions need to be supported by the systems.
ClosingNotes
PresentDayMarineRiskDiscipline
Laggingindicatorandreliesextensivelyontransitivetrust.
Currentlyemphasizesbreakingissuesintosmall,independent
pieceswithlittleornofuzziness.
Good: Riskdisciplineisbecomingmoreactiveanditrecognizes
thatnotallinformationisavailable.
Danger: Riskdisciplineisnotproperlyaccountingformajorvalue
setsofsociety,industryorcompany.
MarineSystemRisk
BigIncidents:ExxonValdez,Erika,Prestige,Deepwater
Horizon,Kulluk
o EnvironmentalandResponsibility/Accountability
IndustryShifts:ClimateChange
Challenges
RiskModes:Passive,CloseShadow,Strategic
EncouragingChartererstorewardbetterpackages.
Communicatingthatriskmanagementisvaluable:
o ReinforcesPositive:Goodthingshappenintermsofachievingobjectives.
o PreventsNegative:ABrutalAudit resultingfromanaccident.
RiskModes
Passive
CloseShadow
Strategic
RiskModesPassive
Closelyfollowspeersinpack
o Benchmarkingusedtosetstandards:Convergenceof
modelsleadstoconvergenceofflaws.
Compliancefunction.TheRandomBomb.
Littleornoriskunderstanding
Setupforfailure:TheMinorityReportproblem
NotexplicitlylinkedtoMissionorValues
Weonlyseeasample.Ifweknoweverythingaboutapopulation,it
isprobablyhistory.RussRobins,AssociateDean,TulaneAB
FreemanSchoolofBusiness
FlawofAverages
RiskModeCloseShadow
ConstantlyadjustwithValuesAssessment
Standardsareconstantlyrevisedinpassiverole
Provideadvicewhenasked
NarrowfocusonstayingalignedtotheValuesAssessment
Communicatethatbadthingshappen
Danger:ComplacencyistheenemytoSuccess
RiskModeStrategic
Operations
o CloseShadowmodeforoperations
o Standardsandmodelsareconstantlytestedusingexplorationandknowledge
sharing
Strategy
o ActiveparticipantinshapingValues
o ActiveleaderinValuesAssessment
o Activeconsultantinbusinessunitandcorporatestrategy
Aimtobearecognizedthoughtleader.
Successiswhenothersseekadvice.
StrengthsofShipping
Multinational
Mature
Physical
Worldmarketwithrealcurrency/trading
Whengoodsdontcrossborders,armieswill.
WeaknessesofShipping
PerceivedtobeaBlackArt
LowReturns(volatileandcyclicalindustry)
HighFinancialRisk
LargeLiability
Theproblemisthatshippingislikethelargerworldinwhichit
operatesaninherentlydisorderlyaffair,existingmostly
beyondthereachofnationsandtheirlaws,beyondthedikes
andcoastalhorizons,andoutacrosstheopenseas.
Itisnotexactlyacriminalindustry,butitisanamoraland
stubbornlyanarchicone.Anditadmitsasmuchabout
itselfWilliamLangewiesche
RisksDoneRight!
Source: Website, FDNY (2013)
PeterWallace Houston,Texas peter.wallace@att.net
Source: Woods Hole Oceanographic Institution
Discussion
SharedValues:MichaelPorter,McKinsey&Company
andothersaretalkingaboutthem.
ClimateChange...
StateOwnedCompanies...
ExplorationandProductionvs.Downstream...
MarineTransportation:Service?...
RelativeSizeofOrganizationscomparedtoRegulators
Whoisaccountable?When?