Managing Disaster Risk: Five Behaviors to Overcome

CEOs tackle tough issues every day, including cybersecurity, innovation, human capital, operational excellence, customer retention, and corporate reputation, to name a few.

However, disaster planning typically only makes the top-five list after something has happened. The reason: Many companies fail to advance plan for the impact of earthquakes, floods, hurricanes and other potentially devastating events—even though they can undermine every one of the priorities mentioned above.

“When it comes to risk, we all have tendencies that can lead to faulty decision-making. Knowing our predispositions, though, may help us correct them.”

Why do natural disasters get overlooked? It’s our nature to be reactive rather than proactive. Additionally, when it comes to risk, we all have tendencies that can lead to faulty decision-making. Knowing our predispositions, though, may help us correct them. Here are 5 behaviors to watch out for and eliminate. Doing so will help put our disaster risk management process back on track.

1. Denial. We see it every year. In the weeks and months after a major natural disaster, companies become keenly aware of the wisdom of hardening or relocating vulnerable facilities. Yet, as catastrophes fade from memory, we shift our focus to more pressing matters. We forget the long-term likelihood or potential severity of a recurrence. We need to overcome this behavior and look coolly at the true risk our facilities (and our suppliers’ facilities) may be exposed to.

2. Selective attention. We like to feel smart, so we tend to discount data that makes us uncomfortable and overvalue information that confirms our existing views. To counteract this behavior, we need to create a comprehensive disaster response plan to deal with contingencies we’d rather not think about, even if we’re convinced a disaster won’t happen.

3. Overreaction. While some people freeze in the face of a disaster, others overreact. This can cause business leaders to make knee-jerk decisions, such as abandoning a facility prematurely. The more we can stay calm and keep utilities and other services at our facilities functioning during a severe weather event, the faster we will be able to bring our operations back online after the immediate crisis has passed.

“It’s far wiser to design-in physical protection from disruption than to count on employees to be heroes.”

4. Overestimation. Confident leaders sometimes place too much trust in the ability of their teams to respond effectively to adverse events as they occur. It’s far wiser to design-in physical protection from disruption (such as cybersecurity systems, lights that go on when the electricity goes out, fireproof doors that close automatically, etc.) than to count on employees to be heroes.

5. Procrastination. It’s the mother of all ills. Being reactive rather than proactive in assessing vulnerabilities can be disastrous when an event happens. The devil is in the details. The time to prepare is well before a potential disaster rears its ugly head.

Paying attention to these five behaviors won’t prevent every business interruption. But as threats of extreme weather events—especially now as we shift into the bad weather months—and other disruptions intensify, great leaders will take their natural blinders off. They will more fully understand that insurance alone won’t bring back lost customers, eroded market share, or a damaged corporate reputation for the company caught off guard. And with blinders off and rational precautions taken, they can go right back to tackling their top-five list.

 

 

Thomas A. Lawson: Thomas A. Lawson is president of FM Global, a $5.6 billion mutual insurance company dedicated to property risk management. Visit http://www.fmglobal.com.