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  • The New Risk in “Risk Management”

    Terrorist attacks confirmed that the unthinkable was possible. To the business world, it meant that being ready for a fire, a flood or a violent crime no longer represented “preparing for the worst.”

    For the entire country, the September 11, 2001, terrorist attacks confirmed that the unthinkable was possible. To the business world, it meant that being ready for a fire, a flood or a violent crime no longer represented “preparing for the worst.”

    The attacks redefined the meaning of risk management in both the public and private sector, Wharton experts say, forcing companies and the government to rethink the ways that they prepare for, respond to and recover from large-scale disasters. The new agenda for security that was set on that sunny fall Tuesday has been tested, questioned and reshaped again and again in the decade since — by events including Hurricane Katrina, the BP oil spill in the Gulf, the 2008 financial crisis, the Arab Spring, the earthquake and tsunami in Japan, and most recently, Hurricane Irene.

    “September 11 is a turning point and a touchstone,” notes Wharton management professor Michael Useem. “It’s something that we still grieve about and something we also want to build from, to ensure that it never happens again. Or, if something terrible happens, we want to make sure we get through the crisis and rebuild.”

    New government policies along with efforts at disaster planning by private companies are aimed at preventing another horrific day like 9/11. The U.S. Department of Homeland Security has an annual budget that exceeds $50 billion. Over the past 10 years, federal dollars allocated for intelligence clocked in at $80 billion a year — more than double what it was in 2001, according to a report issued last week by former 9/11 Commission co-chairmen Tom Kean and Lee Hamilton on the status of the groups’ recommendations.

    But questions remain over how best to protect valuable assets — from buildings to computer systems to people. Indeed, the “report card” released by the former 9/11 Commission chairmen identified nine major recommendations from their initial report that have yet to be sufficiently implemented, including a unified framework for training emergency personnel and responding to crises. “In 2005, Hurricane Katrina revealed that a catastrophic natural disaster could produce a chaotic and disorganized response by all levels of government, causing large-scale human suffering. A decade after 9/11, the nation is not yet prepared for a truly catastrophic disaster,” the report concluded.

    Fear is a powerful motivator, Wharton marketing professor J. Scott Armstrong says, and in some cases the security measures put in place after 9/11 have not been fully thought through. Among those measures, he notes, was the creation of the Department of Homeland Security. “[The department] was developed very rapidly and with little systemic look at the costs and benefits…. If you instill enough fear in people, they start to make irrational decisions.” It leads to what he called the “politician’s syllogism: ‘We have a problem; something must be done. This is something; therefore, this must be done.'”

    Read Full Article on Knowledge@Wharton.com

    Good luck.

    Calvin Wilson
    Founder and CEO
    Upstart: Business and Management for 20-40 Year Old Professionals

    Filed Under: Management


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