Managing the Risk of Catastrophic Failure

The only way to address uncertainty is to communicate and communicate. And when you think you’ve just about got to everybody, then communicate some more.

October 2015 | by Robert Harris

The structuring and delivery of modern infrastructure projects is extremely complex. The long-term character of such projects requires a strategy that appropriately reflects the uncertainty and huge variety of risks they are exposed to over their life cycles. Infrastructure projects also involve a large number of different stakeholders entering the project life cycle at different stages with different roles, responsibilities, risk-management capabilities and risk-bearing capacities, and often conflicting interests. While the complexity of these projects requires division of roles and responsibilities among highly specialized players (such as contractors and operators), this leads to significant interface risks among the various stakeholders that materialize throughout the life cycle of the project, and these must be anticipated and managed from the outset.

And because infrastructure projects have become and will continue to become significantly larger and more complex, losses due to the cost of undermanaged risks will continue to increase. This will be exacerbated by an ongoing shortage of talent and experience—not only are projects more complex, but there are also more of them, which will create demand for more effective and more systematic approaches and solutions.

Keep Faith with the Future

Getting ahead of the curve means taking a hard look at what the future might hold, and that requires a degree of courage. CEOs and their leadership teams need to remain forward looking despite the near-term pressures their businesses might be facing. There are opportunities in a crisis, even though that notion is too lightly bandied around when companies and their employees come under real stress. The task of business leaders must be to overcome the paralysis that dooms any organization and to begin shaping the future.

One starting point is to take stock of what they do know about their industries and the surrounding economic environment; such an understanding will probably suggest needed changes in strategy. Even then, enormous uncertainty will remain, particularly about how governments will behave and how the public will interact. To avoid impulsive, uncoordinated, and ultimately ineffective responses, companies must evaluate an unusually broad set of outcomes and strategic responses and then act to make themselves more flexible, aware, and resilient.

Be Transparent with Employees

Being open about what is happening in a company is partly a question of integrity: employees deserve honesty. Openness also builds respect, trust, and solidarity, all of which in turn help employees stay focused on the task of running the business at a time when financial rewards might be limited and the future uncertain. Openness helps build morale as well. A CEO cannot mislead people and certainly shouldn’t panic them, but explaining problems and the actions being taken to deal with them builds confidence in the quality of the CEO’s leadership. Finally, openness helps ensure that everyone in an organization understands how to make a difference.  

Besides courage, staying ahead of the curve entails having the mechanisms and governance models that allow companies to confront realities unimaginably different from those they would ordinarily expect. Monitoring systems that pick up warning signs are important. So too is an environment, both physical and psychological, where alternative interpretations of the signs can be aired and considered with care and interest.

 

Executive Editor

 Ms Anna Sullivan

Ms Anna Sullivan