Strategic Risk and Marine Shipping

8/12/2019 Strategic Risk and Marine Shipping

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StrategicRiskand

MarineShipping

PresentedtotheMITInternationalShippingClub

25April2014


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MarineShipping

Allwe

do

is

move

stuff

from

point

A

to

point

B.


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SomeBackgroundRef:Wikipedia

IntheMiddleAgestheterm risicumwasusedinhighlyspecific

contexts,aboveallseatradeanditsensuinglegalproblemsofloss

anddamage.

Itbecamewidespreadininsurancecirclesinthe1970swhen

majoroiltankerdisastersforcedamorecomprehensiveforesight.


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ManyDefinitions

Risk:Productoftheconsequenceandprobabilityofa

hazardouseventorphenomenon.

ISO31000: theeffectofuncertaintyonobjectives[positive

ornegative]


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DefineRisk

Riskistheeffectofuncertaintyonobjectivesand

theexpectationssurroundingthoseactivities;

objectivesand

expectations

can

be

both

real

and

perceived.


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Luckfavorstheprepared

EdnaMode,TheIncredibles,Disney/Pixar (2004)


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RiskProcess

RiskIdentification

RiskAssessment

RiskManagement


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RiskManagementTools Avoidance

Transfer

Mitigation Adaptation

Acceptance


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Avoidance


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Riskis

NEVER

Transferred

Riskis

LOANED


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Mitigation


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Adaptation


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Ilaidmyheartopentothebenign

indifferenceoftheuniverse.

TheStranger,AlbertCamus

Acceptance


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TypesofRisk

Occupational

Process

SystemorStrategic

Thereare

many

definitions


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SystemorStrategicRisk

WhereOrganizations,SystemsandPeople

mightormightnotworkasexpected.


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UnmanagedRisk

Risks

that

are

not

acknowledged.

Sometimesfoundasaresultofgapanalyses

Sometimesfoundwithinforward/backwardsearchesresultingfromatell.

UnmanagedRiskiswhenthereareactionsbeingtakenandtheconsequencesarenotbeingconsidered.


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Objective Multilensviewoftheenvironment.

Addsclaritybydecreasingemotionand

separatingfactfromfiction.

Advocating quantitative tools with better understanding ofthe relationships


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FiveConceptApproach

ValueAssessment

Leadership,ManagementandCommitment

WickedProblem

RiskUnderstandingandResponseCapability

KnowledgeSharingandEthics


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Concept1: ValueAssessment

McKinsey 7-S Model


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Source: HuffingtonPost/KATC

Concept1:

Value

Assessment


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Concept2:

Leadership

and

Commitment

Copeswith

Ambiguity

LeadershipLeadership

CopeswithUncertaintyManagementManagement

HappyTalkortheDeal?

CommitmentCommitment


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Concept2:

Leadership

and

Commitment

Source: Rvongher

A cavalier attitude can attract a brutal audit.


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Concept3: WickedProblem

The world is messy.But multiple, structured views help us make sense of it.

Source: Woods Hole Oceanographic Institution


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Ref: Torkel Soma, Blue-Chip or Substandard (2004)

Perspectives


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Ref:UKHSEReport113,OperationalSafetyofFPSOsShuttleTankerCollisionRiskSummary,preparedbyNorwegianUniversityofScienceandTechnology

Everythingisconnected

Ch f k d


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CharacteristicsofWicked

Problems1. Thereisnodefinitiveformulationofawickedproblem

2. Wickedproblemshavenostoppingrule

3. Solutionstowickedproblemsarenottrueorfalse,butgoodorbad

4. Thereisnoimmediateandnoultimatetestofasolutiontoawickedproblem

5. Everysolutiontoawickedproblemisa oneshotoperation

Ref: Rittel andWeber,DilemmasinaGeneralTheoryofPlanning.(1973)


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CharacteristicsofWickedProblems

6. Wickedproblemsdonothaveanenumerable(oranexhaustivelydescribable)setofpotentialsolutions,noristhereawelldescribedsetofpermissibleoperationsthatmaybeincorporatedintotheplan

7. Everywickedproblemisessentiallyunique

8. Everywickedproblemcanbeconsideredtobeasymptomofanotherproblem

9. Theexistenceofadiscrepancyrepresentingawickedproblemcanbeexplainedinnumerousways.Thechoiceofexplanationdeterminesthenatureoftheproblemsresolution

10. Theplannerhasnorighttobewrong

Ref: Rittel andWeber,DilemmasinaGeneralTheoryofPlanning.(1973)


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OceanRanger

Imagination


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Concept3: WickedProblem

The world is messy.But multiple, structured views help us make sense of it.



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Concept4: RiskUnderstandingandResponseCapability


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Satisficing orfollowingminimumregulationsisoftennotenough.

RiskAssessment


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Source: Excelerate Energy,Website(14May2013)

RiskAssessment


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8000BC

3000BC

1000AD

1912

Blah, blah, blah

We have calculated the risk of loss of containment

from a collision at 1 x 10-4 events per year.

blah, blah, blah

Concept4:

Risk

Understanding

and

Response

Capability


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Consequences


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Concept4: RiskUnderstandingandResponseCapability


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Source: Titanic

(1997),

Paramount

Pictures


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Concept5: KnowledgeSharingandEthics

EthicsofHardball

Portfolio,notindividual

KnowledgeSearchandTransfer

Combats

Blind

Spots

CombatsFogofWar

DetectsDrift

Decisions need to be supported by the systems.


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ClosingNotes


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Present

Day

Marine

Risk

Discipline Laggingindicatorandreliesextensivelyontransitivetrust.

Currentlyemphasizesbreakingissuesintosmall,independent

pieceswithlittleornofuzziness.

Good: Riskdisciplineisbecomingmoreactiveanditrecognizes

thatnotallinformationisavailable.

Danger: Riskdisciplineisnotproperlyaccountingformajorvalue

setsofsociety,industryorcompany.


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MarineSystemRisk BigIncidents: ExxonValdez,Erika,Prestige,Deepwater

Horizon,

Kulluko EnvironmentalandResponsibility/Accountability

IndustryShifts: ClimateChange


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Challenges

RiskModes: Passive,CloseShadow,Strategic

Encouraging

Charterers

to

reward

better

packages.

Communicatingthatriskmanagementisvaluable:

o ReinforcesPositive: Goodthingshappenintermsofachievingobjectives.

o PreventsNegative: ABrutalAudit resultingfromanaccident.


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RiskModes

Passive

CloseShadow

Strategic


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RiskModes

Passive

Closelyfollowspeersinpack

o Benchmarkingused

to

set

standards:

Convergence

of

modelsleadstoconvergenceofflaws.

Compliancefunction. TheRandomBomb.

Littleornoriskunderstanding

Setupforfailure: TheMinorityReportproblem

Not

explicitly

linked

to

Mission

or

Values

Weonlyseeasample. Ifweknoweverythingaboutapopulation,itisprobablyhistory.RussRobins,AssociateDean,TulaneAB

FreemanSchoolofBusiness


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FlawofAverages


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RiskModeClose

Shadow

ConstantlyadjustwithValuesAssessment

Standardsareconstantlyrevisedinpassiverole

Provide

advice

when

asked

NarrowfocusonstayingalignedtotheValuesAssessment

Communicatethatbadthingshappen

Danger: ComplacencyistheenemytoSuccess


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RiskMode

Strategic

Operations

o CloseShadowmodeforoperations

o Standardsandmodelsareconstantlytestedusingexplorationandknowledge

sharing

Strategy

o ActiveparticipantinshapingValues

o ActiveleaderinValuesAssessment

o Activeconsultantinbusinessunitandcorporatestrategy

Aimtobearecognizedthoughtleader.

Successis

when

others

seek

advice.


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StrengthsofShipping Multinational

Mature

Physical

Worldmarketwithrealcurrency/trading

Whengoodsdontcrossborders,armieswill.


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Weaknesses

of

Shipping PerceivedtobeaBlackArt

LowReturns(volatileandcyclicalindustry)

HighFinancialRisk

LargeLiability

Theproblem

is

that

shipping

is

like

the

larger

world

in

which

it

operatesaninherentlydisorderlyaffair,existingmostlybeyondthereachofnationsandtheirlaws,beyondthedikes

andcoastalhorizons,andoutacrosstheopenseas.

Itis

not

exactly

acriminal

industry,

but

it

is

an

amoral

and

stubbornlyanarchicone.AnditadmitsasmuchaboutitselfWilliamLangewiesche

Risks Done Right!


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RisksDoneRight!

Source: Website, FDNY (2013)



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PeterWallace Houston,Texas [email protected]


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Discussion SharedValues: MichaelPorter,McKinsey&Company

andothersaretalkingaboutthem.

ClimateChange...

State

Owned

Companies...

ExplorationandProductionvs.Downstream...

MarineTransportation: Service?...

RelativeSizeofOrganizationscomparedtoRegulators

Whoisaccountable?When?

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Strategic Risk and Marine Shipping