Setting fire to your Risk Register

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Setting fire to your Risk Register

A record-breaking blaze 

As the thick smoke filled the air, the people of Australia knew that the 2019 bushfire season was going to be very different from what they had experienced before. Years of community warnings and responses had prepared them for this to be a recurring event. For months, the world watched as the bushfires caused unprecedented devastation and destruction across the country. The blaze claimed the lives of 33 people, destroyed more than 3,000 properties and burned more than 18 million hectares of bushland (that’s bigger than the whole of France, 1.5 Germanys or 6 Egypts if you like relative comparisons). New South Wales was the worst affected state (where Sydney is located) with the fires spreading to the neighbouring states of Victoria and Queensland, all to the East of the country. 

Maybe the pandemic events in the last 9 months caused you to forget what happened before? But as the Earth proceeds with its ritual tilting of the southern hemisphere back towards the Sun, there’s a sense of inevitability that each season’s bushfires will exceed the ones before. The same pattern is happening in the Arctic Circle, in Siberia, in the Amazon Basin, in California – where blazes now are connecting together and being relabelled from “megablazes” to “gigablazes”. So while this story is set in Australia, this is not about Australia.

Australian bushfires are typically started in remote areas by dry lightning, (where no rain falls to the ground). Some reports indicate that a changing climate, with its warmer weather, could be contributing to the ferocity of the 2019–20 fires with hotter, drier conditions making the country’s fire season longer and much more dangerous. 

 By January of 2020, nearly seven months after the fires had started, over a quarter of Australian businesses had been affected by the bushfires to some extent. As reported by Roy Morgan Research, from the 26% of the businesses affected, 7% had been greatly affected due to issues such as cancellations, lack of access to their business or properties due to the fires, or the complete loss of their infrastructure.

A few hours before the Deepwater Horizon oil drilling platform exploded into the public consciousness, executives from the oil company had flown on board to give out prizes as safety awards for the staff.

An escalating risk 

When organisations consider risks, it’s quite usual for a list of typical interrupting issues to be written into a Risk Register, with some consideration given to allocating a rating for the probability that the risk will occur and another rating for the estimate of the expected consequences if the problem does occur. Probability and consequence are plotted on a simple grid and allocated a colour denoting relative priority for dealing with that risk.

It’s a process fraught with deficiencies and ambiguities that perpetuates the gap between the appearance of risk management – and the effective management of risks. If the risk fails to materialise, then everyone involved can continue to live comfortably in the assumption that their risks are being managed. A few hours before the Deepwater Horizon oil drilling platform exploded into the public consciousness, executives from the oil company had flown on board to give out prizes as safety awards for the staff.

At best, the output of these simple risk registering methods is a linear set of discrete, categorised lists, imprecisely scoped, somewhat naïve in their analysis, overlaid with a sense that since each risk has been defined and written up, they have in essence, been domesticated inside a spreadsheet field. At worst, these risk registers fail to take into account that risks are dynamic, they combine, collide, morph, can have both immediate and longer-term impacts that pay no attention to the way in which we wrote them up or imagined they would behave. We don’t even have space in this blog to set out all the cognitive pitfalls which can skew our risk analysis either.

Bushfires are not new. Businesses know about them and will likely have them contained on their risk registers. The increasing ferocity and expansiveness of the fires over the past years do appear to be exceeding earlier experiences of them, potentially rendering risk mitigation efforts as inadequate or futile. The evidence at the end of 2019 is that many organisations’ business continuity plans were stretched beyond capacity.

Australia’s attitude towards climate change – a risk blindspot 

With global climate change boosting the chances of extreme bushfires by 30%, the Australian government had been slacking on their prevention methods. A series of documents released under the Freedom Of Information provisions showed that while some parts of the government were aware by August 2019 that the country was facing an unprecedented bushfire season, their lack of urgency did not allow them to act on time or provide the necessary measures to effectively combat the blazes that followed.  

Many people have protested the lack of federal government willingness to embrace climate change risks and the underlying political resistance to taking action. However, businesses must defend their own risks and not allow political perceptions to shape the underlying objective reality of the specific risks they are threatened by.

It might have been convenient for businesses to echo the anaemic approach of Federal government to climate and environmental risks, assuming that the consequences are fairly linear, growing little by little each year. Such an assumption undermines urgency and encourages complacency. However, there is growing evidence to suggest that not only will businesses suffer increasing financial losses as economic activity is suppressed during wildfires, but there are rapidly growing costs associated with population health (both short and long term) coming from poor air quality, and brand/reputational damage by being perceived as indifferent to issues of environmental survival.

Many people have protested the lack of federal government willingness to embrace climate change risks and the underlying political resistance to taking action. However, businesses must defend their own risks and not allow political perceptions to shape the underlying objective reality of the specific risks they are threatened by.

On 10th December 2019, the Sydney suburb of Rozelle recorded an Air Quality Index (AQI) rating of 2,552 – about 13 times the level defined as hazardous to human health. As I write this blog now in Belgium, after several days of autumn rain and wind, the AQI here is 12. Bushfires produce carcinogenic smoke and air pollution, in general, is considered as the major environmental risk factor in the incidence and progression of diseases such as asthma, lung cancer, ventricular hypertrophy (a heart disease), Alzheimer’s and Parkinson’s diseases, neuropsychological complications, autism, retinopathy (eye damage), fetal growth, and low birth weight. That’s serious stuff, affecting every segment of the population.

Australians on both coasts are beginning to wonder whether or not they will become climate refugees within their lifetimes. Older politicians may have less longevity and fear about this, a bias which may hinder their ability to gauge public sentiment. Business leaders also tend to be older than their customers and should not make the same mistake of ignoring a strategic risk by assuming that bushfires can remain comfortably tucked away as a mere operational risk.

Risk Managers need to be sure that risks associated with changing climate are fully re-evaluated and briefed across the highest levels of management. Tipping points are being reached and change is beginning to happen with a logarithmic profile.

Feel the risk

Ultimately, people make meaningful decisions on the basis of what they feel, not what they think. One of the problems with Risk Registers is they fail to seize attention or imagination. Unlike James Bonds’ cocktails, shaking or stirring (to action) is not commonplace. 

By introducing scenario planning, organisations perceive risks and opportunities more broadly. Senior management are involved in structured exercises to place themselves in an imagined (but plausible) future, where several risks are collided together to stress the organisational response. This creates a situation where individuals are part of a collective thought experiment, engaging with an unfolding narrative of controls and consequences. 

Are our risk assumptions valid? Do our controls work in the way we designed them? Do new aggregate risks take us by surprise? Are their gaps in our preparedness, vulnerabilities in our planning, unintended consequences to our actions, shocking stakeholder reactions to events? Stress testing our assumptions is a healthy way to learn and improve our risk preparedness and scenario planning almost always sharpens an organisation’s risk management, in a way that Risk Registers almost never do.

As a tool to aid effective risk management, it’s surprising that Scenario Planning is not more widely adopted. When we covered the Risk Management Survey Report conducted by the Governance Institute of Australia last month, one of the main issues uncovered in the report was a lack of risk scenario testing. 39% of the participants said they didn’t run risk scenarios to test how their organisation and employees would respond and 44% only did so “occasionally”.

Scenario planning helps organisations unravel long-term issues of complexity, uncertainty and ambiguity, exposes gaps in knowledge, planning and response that could be repaired with additional data-driven research and stakeholder narratives, that can, in turn, generate more informed decisions. 

Bushfires are not going away any time soon, or the climate change that is accelerating them. However, business leaders do have the choice to avoid over-simplistic risk management methods that could still lead to their businesses, literally or figuratively, burning to the ground. We don’t suggest burning your Risk Registers just yet, but we do think the contents could benefit from being more fireproof.

Senscia offers a full range of solutions for addressing risk awareness needs in large and small organisations alike. Get in touch with us here.

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