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by Robert Malone, Contributing Editor   Risk has been inherent in the human condition since time immemorial. To be alive is to be at risk. By extension, to do business is to court risk. Certainly, manufacturing and selling products is a risk -- just ask Sony, Dell, Apple, and Ford about the fallout from product failures. There is risk in running an airline and risk in receiving containers at ports. It pervades our lives and our commercial endeavors, and even as we seek to mitigate it, we do so knowing that we cannot delete it. Risk became a central focus in mathematics in the 1600s during the time of Pascal, and out of that period emerged what is called probabilities. Today we have all kinds of tools for forecasting risk based on probabilities, but when push comes to shove, a single aberrant person or a sudden natural event can throw all the forecasting to the wind. The costs involved in any particular risk -- such as the launch of a new product, the delivery of vital computer parts, or the use of a particular port for shipping -- must be weighed against all the other risks in an enterprise, and each must be assigned a place on the risk meter. We must prioritize the probabilities, lest we become paralyzed by them. New Orleans played the odds with its risk. The city thrived for decades while holding at bay the waters that surrounded it, and the risk of encountering a hurricane strong enough to overrun its defenses seemed remote. Now, its scars and aftermath appear even more tragic than the storm itself. The supply chain was deeply at risk in New Orleans. Why, many have asked, did Wal-Mart react to Katrina with such a cohesive game plan while FEMA did not? (FEMA being just one part of a failed federal response.) Wal-Mart has an excellent vision and execution plan for all manner of supply chain events. The company understands supply chain and logistics priorities. FEMA, on the other hand, had no plan that it could actually act upon. In the wake of Katrina, Wal-Mart restored its stores quickly and stocked them. FEMA failed to marshal the needed resources and resorted to finger pointing. When we turn our attention to port security it becomes evident that we cannot inspect fully all containers and all bulk cargo. So, how do we handle risk in this case? The same way they handle the wounded in an overtaxed field hospital: triage. Triage calls for saving the ones that can be saved, and demands the painful realization that some are beyond that status. The same logic should be applied to seaports and airports. We have to make a choice to put our efforts into what can be done and done affordably, and what will produce the greatest benefit to the most people. One hundred percent inspection of any extended supply chain is a dream. A good example of business management by triage was GE under Jack Welch's leadership. He called his managers to task regularly and those who didn't meet expectations were jettisoned, as were underperforming departments. It worked for decades. It created hardships for some individuals, but those worth their salt excelled, and the company thrived. All good business management, after all, is about managing risk. |