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The most common thing I hear when I tell someone I’m an editor for a magazine about — and titled — risk management is “Ummm…What?” The second most common thing I hear is “Ohhh…Like Ben Stiller from Along Came Polly“? The third most common thing is “Do you work with George Costanza?”
Yes, for one glorious episode of Seinfeld, George had to learn about risk management while working for the New York Yankees and since that show is so ingrained in the public conscious, that is the only exposure that many people have had to the concept. (Click the link to watch George “educate” himself on the discipline.
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When I started out, I was no different. When I got into this job, I knew just as little as Costanza did.
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But ya know what? The more and more risk managers I meet, the more I realize that that is the most common way to enter the field.
Increasingly, kids are going to school to become risk managers and, someday, the pros in the field will less often say “I don’t know how I got into this role. I was a safety manager then I got promoted — that was 12 years ago.” But today, that’s the most common thing I hear when someone tells me how they got into risk management.
Don’t get me wrong — many of the best risk mangers I know arrived by accident. It’s just funny to think that almost everyone who now manages risk professionally once had a little George Costanza in them. Even me.
And just think, it only took eight short years for me to run into Kenny Bania in a coffee shop and hear him say, “I just stopped by to thank you. That risk management stuff you wrote for me is killer … It’s gold, Jared. Gold.”
What’s that? He said “Jerry”? And that wasn’t me? Oh.
A few weeks ago, a report came out that — once again — India led the world in traffic deaths. Given its population (estimated at nearly 1.2 billion, which puts it behind only China), the nation would logically be near the top of the list regardless of any priority it placed on safety. In fact, when India took over the number one spot for road fatalities (from China) in 2006, many people saw this as further evidence that India was truly becoming a economic power.
While having many of you citizens die on the road is obviously counterintuitive to progress, more people driving meant more people were buying cars because more people had more money. Safety needed to be improved, sure, but automobile transportation is always going to lead to some casualties that correlate to population and/or what percentage of that population has purchasing power great enough to afford a luxury like a car.
Anyone who subscribed to that theory five years ago, however, is probably starting to see India’s high death rate for what it is: tragic and avoidable. This New York Times article breaks it down.
While road deaths in many other big emerging markets have declined or stabilized in recent years, even as vehicle sales jumped, in India, fatalities are skyrocketing — up 40 percent in five years to more than 118,000 in 2008, the last figure available.
A lethal brew of poor road planning, inadequate law enforcement, a surge in trucks and cars, and a flood of untrained drivers have made India the world’s road death capital. As the country’s fast-growing economy and huge population raise its importance on the world stage, the rising toll is a reminder that the government still struggles to keep its more than a billion people safe.
In China, by contrast, which has undergone an auto boom of its own, official figures for road deaths have been falling for much of the past decade, to 73,500 in 2008, as new highways segregate cars from pedestrians, tractors and other slow-moving traffic, and the government cracks down on drunken driving and other violations.
It has been illustrated through various means time and time again, but this is just one more example of how India’s city planners and public officials are failing to provide adequate infrastructure to support the nation’s booming economy.
Unfortunately for Indians, roadways aren’t the only transportation problem. As you can see in the video below, the trains are not a much better option. Marked by overcrowding and delays, it takes workers who commute to the major cities an exorbitant effort just to make it to their jobs every day. Worse still, there are still many political and religious-based attacks on railways in many regions. The 2006 Mumbai bombings, for example, killed more than 200 and injured another 700.
A few weeks ago I went to the annual meeting of Coface, a company that specializes in international credit risk. As it does each year, Coface brought in a group of experts to talk about the most pressing global economic issues and professor David Denoon of New York University spoke about China and India, painting a much different development picture of the world’s two most populous locales.
China, he said, is characterized by places like Shanghai, where just in recent years alone construction has begun on more high rises than exist in all of Chicago. By contrast, he emphasized that the per capita income in India is merely $3,100. That’s equal to one-third of the average income in Brazil and one-fifth the average in Russia.
Looking at those numbers, it seems that both infrastructure and income distribution will pose a growing concern for the nation that puts the I in BRIC.*
* (The acronym for the world’s four biggest emerging economic powers, Brazil, Russia, India and China. Also, for a look at some of the risks that have plagued the largest Indian carmaker, check out Bill Coffin’s look at Tata Motors’ “Cheap Cars, Costly Protests.”)
The New York Times today published the best, most comprehensive, most anger-inducing piece I have seen detailing the collective risk management failings that led to the Gulf oil spill. Clocking in at around 6,500 words, this thing is a doozy. But it is a report that everyone who wants to understand how this disaster really came to be needs to read.
The article focuses mainly on the failure of “blowout preventer,” a device attached to every well drilled in order to, you guessed it, prevent blowouts. While immensely complex and huge — it’s five stories tall and weighs hundreds of thousands of pounds — its purpose is to provide a shut-off method in case something goes wrong with the well.
Even more specifically, we get a wonderful lesson into the ultimate fail-safe: the “blind shear ram.” There are many components within the blowout preventer that must operate properly to shut off a well, but the blind shear ram is the final device that ultimately seals the thing. If it fails, the whole thing fails.
And all evidence is pointing to the fact that, on the Deepwater Horizon, it failed.
The process to activate the blind shear ram and seal the pipe is complex, but according to this article, the risks associated with that complexity were well known by all the players in the drilling industry. And on the Deepwater rig, no one did all that much to mitigate that risk. In contrast, in other instances, other companies and other rigs adopted redundancy as a way to ensure that a well shut-off would not be compromised.
These kinds of weaknesses were understood inside the oil industry, documents and interviews show. And given the critical importance of the blind shear ram, offshore drillers began adding a layer of redundancy by equipping their blowout preventers with two blind shear rams.
By 2001, when Transocean, now the world’s largest offshore drilling contractor, acquired the Deepwater Horizon, it had already begun equipping its new rigs with blowout preventers that could easily accommodate two blind shear rams.
Today, Transocean says 11 of its 14 rigs in the gulf have two blind shear rams. The company said the three rigs that do not were built before the Deepwater Horizon.
Likewise, every rig currently under contract with BP, which had been renting the Deepwater Horizon, comes with blowout preventers equipped with two blind shear rams, according to BP. While no guarantee against disaster, drilling experts said, two blind shear rams give an extra measure of reliability, especially if one shear ram hits on a joint connecting two drill pipes.
“It’s kind of like a parachute — it’s nice to have a backup,” said Dan Albers, a drilling engineer who is part of an independent investigation of the disaster.
Weaknesses were understood inside the oil industry, documents and interviews show. And given the critical importance of the blind shear ram, offshore drillers began adding a layer of redundancy by equipping their blowout preventers with two blind shear rams.
By 2001, when Transocean, now the world’s largest offshore drilling contractor, acquired the Deepwater Horizon, it had already begun equipping its new rigs with blowout preventers that could easily accommodate two blind shear rams.
Today, Transocean says 11 of its 14 rigs in the gulf have two blind shear rams. The company said the three rigs that do not were built before the Deepwater Horizon.
Likewise, every rig currently under contract with BP, which had been renting the Deepwater Horizon, comes with blowout preventers equipped with two blind shear rams, according to BP. While no guarantee against disaster, drilling experts said, two blind shear rams give an extra measure of reliability, especially if one shear ram hits on a joint connecting two drill pipes.
“It’s kind of like a parachute — it’s nice to have a backup,” said Dan Albers, a drilling engineer who is part of an independent investigation of the disaster.
In short, there were known issues with the ultimate, industry-standard fail-safe measure to prevent this type of spill. And in many cases — even most of those cases involving rigs constructed by Transocean and operated by BP — those issues were recognized and managed. But on the Deepwater Horizon, the most common method of managing that risk (redundancy) was not implemented.
Read into that whatever you like.
In fairness to BP and Transocean (something that’s hard to even try to provide anymore if I’m being honest), there is much, much, much, much, much more to all this. For example, the federal offshore drilling regulatory agency, the Minerals Management Service, knew all about these very same risks and never adequately ensured that any company do anything about them.
The federal agency charged with regulating offshore drilling, the Minerals Management Service, repeatedly declined to act on advice from its own experts on how it could minimize the risk of a blind shear ram failure…Even in one significant instance where the Minerals Management Service did act, it appears to have neglected to enforce a rule that required oil companies to submit proof that their blind shear rams would in fact work.
There is also ton of evidence that blowout preventers and blind shear rams — inherently — aren’t that great at stopping a well on an industrywide basis.
Using the world’s most authoritative database of oil rig accidents, a Norwegian company, Det Norske Veritas, focused on some 15,000 wells drilled off North America and in the North Sea from 1980 to 2006. It found 11 cases where crews on deepwater rigs had lost control of their wells and then activated blowout preventers to prevent a spill. In only six of those cases were the wells brought under control, leading the researchers to conclude that in actual practice, blowout preventers used by deepwater rigs had a “failure” rate of 45 percent.
Plus, there’s this:
More than three decades ago, the failure of a shear ram was partly to blame for one of the largest oil spills on record, a blowout at the Ixtoc 1 well off the Yucatan Peninsula in Mexico. Descriptions of the accident at the time detailed problems both with the shear ram’s ability to cut through thick pipe and with a burst line carrying hydraulic fluids to the blowout preventer.
In 1990, a blind shear ram could not snuff out a major blowout on a rig off Texas. It cut the pipe, but investigators found that the sealing mechanism was damaged. And in 1997, a blind shear ram was unable to slice through a thick joint connecting two sections of drill pipe during a blowout of a deep oil and gas well off the Louisiana coast.
Honestly, I could excerpt this whole article. It details so many instances where so many industry players did so little to solve the so very well known risks of drilling.
So infuriating.
So … really, you should just go read it in full. Additionally, here is the accompanying Times video that helps explain what exactly a blind shear ram is and how it works — in theory, of course.
For 10 days, the World Cup has been captivating the globe. Widely considered the greatest event in sports, fans have been riveted by the daily matches from South Africa featuring soccer legends like Lionel Messi from Argentina, Cristiano Ronaldo of Portugal and Wayne Rooney of England. But while the players make the “Beautiful Game” look effortless, the preparation to ready the country for this tournament of 32 nations was anything but.
Building stadiums, improving transportation infrastructure and ensuring security took a Herculean effort in a country that escaped Apartheid just 16 years ago and, even today, struggles to overcome societal ills including a 25% unemployment rate, some 50 murders per day and a population where 11% of South Africa’s nearly 50 million citizens live with HIV.
The rail link was planned and approved long before South Africa was awarded the World Cup. However, there is no doubt that the World Cup speeded up the construction project, which was started in 2006.
Munich Re was also involved in the mammoth upgrade of “Soccer City,” the Johannesburg stadium that is the nation’s crown jewel for this year’s World Cup. (See video below for more on the renovation.)
February 2007 saw the beginning of stadium renovation, which was covered by way of a CAR policy. The stadium, renovated at a cost of 300 million pounds and ten million working hours, will host the opening ceremony, the opening game and the tournament final. Its new design takes its inspiration from traditional African pottery and resembles a calabash. The renovation work, completed in October 2009, increased Soccer City’s capacity from 80,000 to 94,000, making it the biggest stadium in Africa.
Additionally, Munich Re insured the construction of at least two other stadiums that were built from the ground up for the World Cup.
That’s just for the games themselves. Lloyd’s turned to Chris Nash, an underwriter at Sportscover, for some additional input on the “vast range of potential coverage.” He rattled off a list that includes competitions, offers, prizes, sponsorships, and broadcast rights. “It’s impossible to know how many there are, but all companies with these financial implications need coverage,” he explained. “When you take this into account along with the number of broadcasters around the world airing the games, I’d probably estimate the whole thing at around £3 billion [$4.33 billion].”
What it all comes down to is that, for all companies involved in this year’s World Cup, there is a lot more than goals, trophies and international bragging rights on the line. They stand to make — or lose — millions depending on how the tournament plays out.
The last time the World Cup was canceled was World War II. These days, the business of sports is much bigger, and so are the potential losses.
Between the opening ceremony for the 2010 World Cup on June 11 and the presentation of the trophy a month later, almost 100 hours of live soccer is being broadcast around the world. Soccer federation FIFA earned $2.7 billion in total from the broadcast rights at the 2002 and 2006 World Cups, according to FIFA’s figures.
FIFA said it took out an insurance policy to provide coverage of $650 million in the event of the postponement or relocation of the games. This policy covered acts of terrorism, natural disaster, epidemics, war and accidents. Munich Re’s share of this policy is the largest at $350 million.
And while South Africa, the first country on the continent to host the World Cup, struggles with its reputation as a crime hot spot, crime doesn’t directly affect contingency and liability insurance for the World Cup. Instead, it would have been a concern for fans insuring their trip, according to Emily Hughes, a spokeswoman at Lloyds.
The last time the World Cup was canceled was World War II. These days, the business of sports is much bigger, and so are the potential losses.
Between the opening ceremony for the 2010 World Cup on June 11 and the presentation of the trophy a month later, almost 100 hours of live soccer is being broadcast around the world. Soccer federation FIFA earned $2.7 billion in total from the broadcast rights at the 2002 and 2006 World Cups, according to FIFA’s figures.
FIFA said it took out an insurance policy to provide coverage of $650 million in the event of the postponement or relocation of the games. This policy covered acts of terrorism, natural disaster, epidemics, war and accidents. Munich Re’s share of this policy is the largest at $350 million.
Though the worst threats have been avoided so far, the very first week did provide cause for concern, as striking employees from a private security firm hired to protect a stadium in Cape Town clashed with local law enforcement on June 17.
Police in Cape Town fired a stun grenade and rubber bullets to break up a protest Thursday of more than a hundred private guards who had been hired to provide security at a World Cup soccer stadium.
The clash was the latest incident involving employees of Stallion Security Consortium, whose employees were replaced by police officers at four stadiums around the country after the workers walked off the job in a pay dispute with their employer.
Although the labor dispute hasn’t affected the World Cup games, the incidents highlight simmering tensions in a country where many workers remain poorly paid and unemployment is about 25%. State power company Eskom is in the midst of negotiations to avoid a pay strike that could disrupt electricity supplies. A three-week strike over wages last month paralyzed the country’s ports and freight rail.
Fortunately, security has still largely been maintained throughout the country since the tournament began and the worst fears of many have not been realized, despite this first scare. Let’s hope it is also the last.
A video showing the transformation of Soccer City in Johannesburg into the largest, most iconic stadium in Africa.
