CATASTROPHE PLANNING

CATASTROPHE PLANNING
Accidents do happen despite the best intentions and most effective efforts to forestall such eventualities. And the response to the bad news is probably the most critical component of any loss reduction strategy.
In the immediate aftermath of the Rouge River powerhouse catastrophe,
William Clay Ford Jr. dispatched his personal aide, with credit card in hand, to track down the victims’ families and do whatever was required to help out. The company worked with its suppliers to procure
Risk and Risk Management 15
electrical switching equipment and to obtain portable boilers for steam. Detroit Edison built an outdoor substation—in a week—to supply the power necessary to get the Rouge River complex back on line. The result was a triumph in loss reduction—a potentially catastrophic business
interruption scenario truncated to a one-week hiccup on the production
line.
There are many other examples of the importance of catastrophe planning, good and bad. For example, back in 1986, when a still unidentified
individual replaced the painkiller in several bottles of Tylenol capsules with cyanide, the result was the death of an innocent consumer.
Johnson & Johnson, the maker of Tylenol, didn’t attempt to deflect blame (after all, they hadn’t adulterated the capsules) or otherwise
temporize. They immediately recalled all the capsules from store shelves—even those that were clearly untainted—and then designed the generation of tamper-proof containers still in use today. This is a textbook loss-reduction strategy—timely, aggressive, and (while costly in the short run) effective.
In contrast, consider the strategy of Johns-Manville, once the world’s biggest producer of asbestos, which, as we noted earlier, collapsed
under the weight of litigation from asbestos claims in 1982. Johns-Manville’s apparent decision to ignore the risks of asbestos exposure to its workers, long after the evidence indicated that management
may have suspected a link between asbestos exposures in the workplace and worker health, resulted in lives ruined and lost. The cost to Manville and its shareholders was ultimately that of corporate bankruptcy.
Dan Sobczynski offers some sound advice: “Either manage the risk, or it will manage you,” he says, “and, when it does, the loss will happen when you are least prepared” (Financial Times 1999).