by alex on September 7, 2010
Gideon Rasmussen, CISSP, CISA, CISM, CIPP, writes in his latest blog post (http://www.gideonrasmussen.com/article-22.html) about the BP Oil spill and operational risk, and the damages the spill is causing BP. Ignoring the hindsight bias of the article here…
“This oil spill is a classic example of a black swan (events with the potential for severe impact to business and a low rate of occurrence)[vi].”
No. No it’s not. A Black Swan is something for which our prior distributions are completely uninformative. In this case there was plenty of prior information about Deepwater, both from a “macro-analytical” standpoint (frequency & impact of oil well accidents) and from a “micro-analytical” standpoint (there were plenty of warnings about mis-management leading right up to the spill).
Now some of you readers will be thinking “there goes Alex again, waging war against Taleb’s stupid mischaracterization of ‘black swan'” and yes, Gideon is using “black swan” when he means “tail event” – I don’t blame him for that, it’s a common error perpetuated by that awful book. Bear with me….
That’s not my point today. What is important is this:
We (the risk & data analysts of the world) need to be really careful about how we’re communicating to management. Saying that Deepwater was a “Black Swan” or more properly, a “tail event” can allow someone to think that they just got “unlucky”. This is crap. BP did not get unlucky, they got cheap, lazy, and sloppy. And not just at the well, either. If (and this is just an “if”) upper management’s tolerance for risk was NOT reflected by the singular judgement calls made to circumvent appropriate safety controls, then upper management suffered what some would call a “governance” problem (I use the term very begrudgingly here – more on that in a bit), and a significant one at that. And since rant mode is on, let me explain that this is one thing that bugs me about IT or Op risk assessments – the impact of organizational behavior is rarely taken into account. Take, for example, R=TxVxI (please?). “V” is not just the weakness in the system we see, it is a cocktail of operational skills, resources, management (don’t make me say governance here, please), and yes, even “luck”.
SO the lesson here might just be that risk communication (and before you go there, IHMO COSO is self-defeating – see below) is a significant part of the risk analysis determination. We security people focus on “upwards” communication of risk – trying to educate C-levels about the dangers they face. But I’d bet that if an organization is incapable of communicating tolerance effectively from the top down, then they are likely to have more problems than those that don’t. There can be a time-lapse problem (Jaynesian entropy if I can use that term) between the operational happenings (what’s going on at the well) and the ability of those ultimately accountable (sr. mgmt) to detect, respond, and prevent risk issues from happening.
Even worse? We’re keen on adding more bureaucracy to solve the communications problem in the name of “recognizing” and “managing” risk (GRC, ERM councils, Legal departments, bleh). But in an organization the size of BP, a “GRC Dashboard” just isn’t going to solve the “micro-analytical” problems faced at Deepwater (assuming that BP executive management would have had a lower tolerance for probable incidents than the decision makers at the well).
The lumbering ogre of Enterprise Governance is no replacement for real quality management.
One can only imagine if BP had an Operational Risk Program like our standards and consultants tell us we should be operating. What are the chances that the problems at the well would have been politically covered up, or been part of a 24 month “Enterprise Risk Assessment”, with Deepwater’s issues being one of (hundreds of?) thousands of individual risk issues documented very nicely and expensively, but never effectively communicated to the board?
There has GOT to be a better way.