You know the future is unpredictable when the weathermen give up on forecasting extreme weather. A friend, Peter Dugmore, tipped us off about a significant shift that has taken place in TV coverage preceding an extreme event in the US. The recent snowstorms were initially presented as a scenario that was considered a credible possibility.

As the flags went up one by one, the possibility became a probability and the probability became a reality. For some time, the paths of hurricanes have been treated in this way. You have a cone of potential places the hurricane can reach opening up in the days ahead. With constant monitoring of the hurricane's actual strength and course, the cone is adjusted and narrowed until the event is over. It all starts again when the next one is discovered.

How different this is to the famous occasion in October 1987 when a British weatherman famously denied that anything extreme was in the offing the night before one of the biggest storms of the century hit the southern counties of England. Nevertheless, in terms of catastrophic risk management, the current American approach still lacks a critical element which is apparent from the tardy response of municipal authorities to the event when it happens. Citizens in New York are as much up in arms as travellers at Heathrow about the ineffectual clearing of the snow, leading to unreasonably prolonged disruptions.

Ever since we wrote The Mind of a Fox nearly 10 years ago, we have consistently advocated that you cannot just play scenarios; you have to consider the options available to you and select the best ones in advance. This extension of the scenario planning technique brings the scenarios more alive than just considering them as mere possibilities. Moreover, your response in the event that a scenario materialises is likely to be more swift and effective than action taken in the heat of the moment.

Hence, we are now offering a five-step methodology to clients who wish to undertake an exercise covering potential catastrophes to their business:

1. Identify catastrophic events which could close your operations down in each of your business units and in each region/country in which you have set up shop. Every element of your product range and geographical footprint has its own set of unique risks.
   
   Events can be classified as "internal" where a multiple failure of in-house systems can lead to catastrophe; or "external" where adverse political, economic or natural developments or shocks can cause premature extinction. For example, the range of events can include accidents, civil wars, state expropriation of assets, market collapse, massive disruption of supply chains and earthquakes/flooding.
2. Imaginatively play a scenario on each event highlighting the causal chain which can lead to the catastrophe and the impact on the business of the catastrophe itself. Where possible, select flags which may indicate a rise in the probability of the event occurring such as the abnormal withdrawal of a tide before a tsunami hits the beachfront.
3. With probability of occurrence on the vertical axis and seriousness of impact on the horizontal axis, locate each scenario on the chart so that you have a real feel for the ones you should prioritise in terms of response strategies and tactics. Which are the real catastrophes waiting to happen?
4. Make a list of all the organisations who have relevant roles to perform in the event of a catastrophic scenario materialising. In particular, work out where they fit in the decision-making structure and specifically the people in each organisation to contact as the disaster unfolds. Remember actions taken in the first 48 hours usually determine public perceptions about your competence in handling the event.
5. Just as a catastrophic fire scenario requires preventative measures as well as emergency procedures should it break out in a building or forest plantation, so each catastrophe scenario should carry its own sequence of pre-event and post-event drills. Each option should be subjected to a cost-benefit analysis so that you have the best drills in place to prevent the event happening and to contain it if it happens.

Learning from Wivenhoe

By Clem Sunter, originally published on News24.com on 10^th January 2012

Several years ago, I was asked by the Local Government Managers Association in Australia to do a series of lectures on scenario planning to the management of the major cities. 

In Brisbane, I remember at the lunch I addressed turning to my neighbour at the table and asking a question which any scenario planner worth his salt would ask: “What is your biggest uncertainty – the one that would give you the biggest headache?”



His response was: “Another flood like the one we had in 1974. But we do have a buffer in the Wivenhoe Dam which should mitigate the consequences of any repeat event.”



It is now a year since the second flood which was just as catastrophic as the first one in terms of personal tragedy and loss of property. An enquiry has already been held into what went wrong and come up with recommendations to avoid yet another disaster.

I would like to add my own advice in terms of the work I have done in the field of catastrophic risk management. These are the steps I would take right now to ensure the best chance of making the correct decisions in the wake of another abnormal weather event:

1. You have to assemble a representative team of all the players involved in a phenomenon such as this. It would include the weather specialists, the dam management and Brisbane’s city management and emergency services. Based on the experiences of 1974 and 2011, the first task would be to come up with a set of scenarios indicating the various ways a repeat event of abnormal rainfall could unfold. 


   
   Each scenario should have its own selection of flags indicating that the odds on that particular scenario are rising. It is as important to identify the flags as it is to explore the causal sequence of events contained in the scenario itself. Specifically were there flags from January 1 – 8 last year which the weather forecasters were raising and which implied that something extraordinary was possibly about to unfold? Were they communicated to dam management?



2. Having formulated the scenarios and associated flags, the next task is to work out the consequences of the scenarios in human and financial terms if they are allowed to play out with no effective response. What is the cost of the physical damage and other impacts? 


   
   This is crucial information as it is the combination of the probability of a scenario and its impact that allows you to judge to what level of cost you are prepared to go with countermeasures to prevent it happening or ameliorate the aftermath. For example, with ten years of drought up to 2011, it would have been a difficult decision to release large amounts of water from Wivenhoe prior to the exceptional rainfall on January 10 and 11. 


   
   However, if the calculation had already been done on levels of probability and damage of a no-early-release scenario, it might have made it easier to overrule the argument of water being a precious resource and therefore to smooth out the eventual release so that it did not cause so much flooding. You could still have been wrong if the rainfall had remained normal; but the action of early release would have averted the possibility of even more costly consequences which had been estimated beforehand from one massive release. 


   
   That is how the decision would have been justified in the event that the worst-case scenario did not actually happen. Life is unpredictable and every judgment on the most favourable option at the time of a crisis has to be based on relative probability and impact. You can only do your best. Doctors will tell you that too.



3. In response to the scenarios, you have to examine the cost and effectiveness of all the options you have available within your control: from raising the wall of the dam to keeping more capacity in reserve to pre-emptive release of water to the banning of property development in the most serious flood-risk zones downstream of the dam.
   
   Some options might require action now (such as changing the design of the dam) and some options would only be triggered at the time of another potential catastrophe.



4. In order to choose between options and devise the optimum strategy to handle the different scenarios, you need to separate the drills which are necessary to take the consequences of another emergency out of play altogether from the drills which will be exercised to minimise the damage if it is unavoidable – pre-emption versus amelioration. Crucially, you must identify now the list of individuals involved and settle on the best network through which they can communicate prior to and during another emergency.
   
   Given the preparatory work around the scenarios, flags, probabilities and possible impacts; and given the examination of the options, decisions and drills appropriate for the scenarios: the conversation will be that much more nuanced and educated; and the speed and quality of response that much more balanced and assured.
   
   Obviously, the purpose of this article is to take the lessons from the Wivenhoe experience and apply them to any situation of great risk anywhere in the world. You have to do the scenario work up front – and simulate the best course of action from what is available.
   
   Since airline pilots are required to do this until it becomes second nature, the same logic should apply to the managers of any risky enterprise