14.2 Organisations and risk
In an organisational setting, the risks could be more extensive, particularly in manufacturing situations when a range of engineering, mechanical and chemical hazards might exist that could impact human and environmental systems. For an organisation, risk can be expressed in all sorts of ways, but is often linked to financial damage arising from a hazard event, which forces interruption, closure of the organisation or exposure to large financial liabilities. As you saw in the listing of environmental disasters, the oil company BP was fined very substantially for its liabilities linked to the Deep Water Horizon rig explosion and subsequent oil pollution in the Gulf of Mexico.
The litany of environmental accidents and pollution incidents suggest this diversity in interpreting risks is also the same for organisations.
One organisation may not see their activities, such as disposing of waste water used for car washing into drains, as being particularly environmentally impactful or risky (i.e. likely to cause environmental damage to aquatic ecosystems). But another organisation (perhaps a regulator or more ‘responsible’ car wash operator) might be very concerned to avoid the likelihood of the pollution (the hazard) occurring.
Activity 16 Organisations and risk
Navigate to your preferred news portal. If you don’t have one, you could try. If you prefer, you can use a newspaper or television news stream or radio. Identify a news story that is linked to organisations and risk. It does not have to be environmentally based, but it is helpful if it is. Now answer the following questions:
- What risks are being described and how is it linked to the organisation?
- Compile a ‘risk register’ using the same format as Table 5 to identify the hazard and possible source of exposure.
- What are the expected consequences for the organisation?
- What steps, if any, are being taken to reduce or manage the risks?
My news story is taken from the ‘Science & Environment’ section of the BBC News website in late July 2013 and is about drilling for oil in the Arctic. There are several organisations involved – governments, a government committee, drilling companies and an environmental NGO. A UK Government committee – the Environmental Audit Committee – has called for a halt to drilling.
- The risks being described refer to the risk of pollution spills arising from drilling operations in such a remote and harsh environment, and the risks of climate change arising from using the oil and gas that might be recovered in the drilling operations. There is also mention of climate change arising from methane being released from melting of permafrost.
- The risk and hazard register might look something like this:
|Pollution||Oil spill||Drilling operations|
|Climate change, biodiversity loss||CO2, other emissions||Use of fossil fuels|
|Financial costs (£39 trillion)||Methane release||Melting of permafrost|
- There are several expected consequences, but these are disputed by those involved. The UK Government is not halting the drilling because it is not within UK waters. The drilling companies are therefore not being regulated under UK law, but are encouraged to use the highest drilling standards and practices. If the drilling companies do find reserves, then they are likely to make significant profits. Greenpeace suggests the drilling will create ‘unmanageable risks’ to the pristine regional environment, and also contribute to climate change globally and in the UK – a point also made by the Chairwoman of the Environmental Audit Committee.
- The UK Government suggests its new policy on drilling in the Arctic and encouraging the good practices of the drilling companies are sufficient to manage the risks of pollution from oil spills. This is disputed by the other organisations represented in the article. There are no other obvious management measures in place (although the drilling companies may be subject to regulation from Arctic sovereign states).
At the time of writing, it is not possible to predict the news events you’ll be looking at in the future. You may be reviewing local or global issues. It is, however, likely that there will be some discussion on data (or lack of), understanding of the situation, and decision-making processes and structures within organisations. Because of the gaps and uncertainty concerning hazards and safe exposure limits, the boundaries of risks are often unclear. In addition, risks are often perceived and evaluated very differently. An article in the Harvard Business Review (Taleb et al., 2009) noted that executives often make six basic mistakes in assessing risks. Paraphrased, these are:
- We think we can manage risk by predicting extreme events.
- We are convinced that studying the past will help us manage risk.
- We don’t listen to advice about what we shouldn’t do.
- We assume that risk can be measured in numbers.
- We don’t appreciate that the way risk is framed (often mathematically) shapes our responses.
- We are taught that organisational efficiency does not tolerate spare capacity or spare ‘parts’, which can help withstand risk events when they happen.
You may well have encountered or recognise some of these mistakes. They are another dimension of how environmental concerns are framed – whether as problems or more complex situations. The article concludes with the stark warning:
Remember that the biggest risk lies within us: we overestimate our abilities and underestimate what can go wrong.
The inherent difficulties humans experience assessing complex risks and making sense of uncertainties and gaps in understanding makes it very hard for organisations to ascertain and manage risks easily or effectively. To some extent, financial risks can sometimes be more easily understood by organisations, especially business-type organisations, because many of their practices are linked to finances and accounting ‘traditions’.
Environmental considerations are, however, very different. They often require different and new skills sets and knowledge, and until recently were not part of an organisation’s remit, practices or traditions. Increasingly, however, in recognition of the relationship with and often dependency of many organisations on their environment, organisations have sought to combine or overlay financial risks with environmental risks. The BP Gulf of Mexico oil spill is a high profile example of where the financial risks to the organisation have become entwined with environmental risks.
Risks are therefore a key aspect of organisational functioning and decision making. In many cases, environmental management for organisations is about risk reduction by management of hazards and managing exposure to hazards, whether as inputs to the organisation, organisational functioning or outputs from the organisation.