Catastrophe Risk Management

Implementing Natural Hazard Resilience throughout a Large Organization

Nathan Gould | November 30, 2018

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An active 2018 hurricane and wildfire season in the Unites States, along with recent seismic events in Indonesia and Japan, continue to remind us of the significant risk from natural hazards. In addition, the increased frequency and severity of these types of events have raised the awareness in many large organizations of the need to understand and mitigate the risk that these events pose to their staff, facilities, and operations.

Many large, multinational organizations have dedicated risk management professionals tasked with understanding, quantifying, and mitigating the risk posed to their organizations from natural hazards. While understanding and even quantifying the risk to staff, facilities, and operations can be accomplished in a relatively straightforward manner, mitigation of current and future natural hazard risks can be complicated and often involves input and buy-in at many levels of the organization.

The initial inclination of an organization's risk management team may be to address the natural hazard risk with insurance and other financial tools; however, it can often be difficult to adequately address the risk using these tools alone. For large organizations with geographically diverse operations, one effective method of reducing their current and future risk to an array of natural hazards is to better control the design and construction of large capital projects. These projects, which typically represent a significant financial investment for an organization, often have a projected operational lifespan of at least 50 years. The potential lifespan of a new facility requires consideration of not only today's risk but the risk posed by the increasing frequency and intensity of natural hazard events. 

An organization's management team has likely been exposed to the concept of utilizing increased resilience in the design and construction of their facilities and the supporting infrastructure. This increased resilience limits potential damage to operations, increases their ability to more quickly recover from damaging events, and reduces the overall financial risk from natural hazards. While this concept is relatively simple to understand, the implementation of a program to promote more resilient facilities and operations within a large organization can be extremely challenging. 

Development of a Standard

Obtaining full support from the highest level of an organization's management is critical to any program that seriously promotes more resilient facilities and operations. Any program that is focused on substantive change in design and construction of major projects will have significant cost and schedule impacts as current and future projects progress.

It is imperative that members of senior management convey their strong support for this program throughout all levels of the organization. Large projects that require significant financial resources may be in the planning stages for months or even years with preliminary budgets and schedules. Leaders of these projects should not only be told why this new standard is being developed (protection of staff and overall risk reduction) but should also be given additional resources (and schedules) to implement the new requirements. Simply telling the project manager that they must adhere to a new standard for design and construction, without detailed explanations and the promise of additional resources, may be perceived as an unfunded mandate. 

It is important to develop a natural hazard design standard that can be applied throughout the organization, regardless of the geographic location of the project and/or the design team. Standards can be for a specific natural hazard or they can attempt to cover multiple hazards. Either way, a design standard should convey the organization's philosophy on risk reduction/resiliency in addition to the technical "nuts and bolts" required to achieve the risk reduction. There is often a need for a discussion (and possibly examples) regarding the difference between hazard and risk. Many people conflate the two, and this often leads to confusion when projects in regions of moderate and high hazards are required to adhere to similar levels of risk reduction. 

Engage Key Members of the Organization

The development of these standards typically starts with an existing state-of-the-art code or standard (e.g., the International Building Code) as a template. Enhancements to the requirements of that code or standard are made to provide a risk profile that is in line with the organization's performance expectations. The initial draft of a standard can be developed relatively quickly for typical natural hazards and performance objectives. 

A draft standard is just that, a draft. How the existing code requirements are enhanced, and to what level, often requires detailed technical discussions and workshops. Key members of the organization should be represented in the discussions at the workshops. Note that these gatherings are purposely posed as workshops, not meetings, due to the intended interactive nature of these events. For a large manufacturing company, these workshops may include upper management (to provide the corporate mandate), project and construction management (to provide general information on potential impacts to project costs and schedules), production (to help the team understand what buildings and elements are critical to getting production back on line after an event), maintenance (can provide insight into the vulnerability and resilience of equipment and systems), and engineering. Representatives from vendors of critical equipment and systems can also be helpful.

When senior management presents the corporate mandate regarding risk reduction through the implementation of a natural hazard design standard, it can be helpful to provide some insight into the risks that the company faces from the hazards that are to be addressed as well as the current cost (e.g., insurance, redundant facilities, financial reserves, etc.) to the organization as it attempts to mitigate the risk. It is critical that the initial corporate directive for this effort be presented in mandatory language that stresses that new projects must adhere to this new standard. As those who have worked on large, complicated capital projects know well, there often comes a time during a project when difficult decisions must be made due to budget, schedule, and other numerous competing issues. Without a strong mandate from the highest level of the organization, the measures to increase resiliency and reduce the natural hazard risk may be sacrificed to facilitate other interests.  

Conclusion

The development of a natural hazard design standard to increase facility and operational resilience is an effective tool for reducing natural hazard risk across a large organization. While the concept is relatively simple to understand, the development and implementation of a detailed natural hazard design standard can be difficult for a large organization.

Key steps include the following.

  1. Buy-in and active support at the highest level of the organization
  2. Effective messaging of the corporate mandate and method for natural hazard risk reduction
  3. Development of a standard modeled after current state-of-the-art building code
  4. Workshops and discussions with key segments of the organization to refine the standard relative to the desired performance objective
  5. Follow-up during the initial planning and design stages of new projects to confirm that the standard is being utilized
  6. Follow through to the end of construction to make sure that any enhanced design measures are fully and correctly represented in the constructed facility

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