Université Paris 1 Panthéon-Sorbonne, Directeur pédagogique du CARM_Institute, Paris, France
SVP, Strategic Solutions, Sedgwick, Inc., long term senior risk management practitioner/leader
1.1.1 The Origin of Modern Risk Management
Spectacular events occurred during the final decades of the twentieth century that fed the âfear of the millenniumâ. The first decade of the twenty-first century also fed fears, including alternating natural events or technological catastrophes, increasing terrorism, social upheavals like the âArab Springâ that began in 2011, the Asian tsunami in 2004, and the typhoon in Japan in 2013. Traditional media, expanded by social media, did not miss an opportunity to blame the ravages of globalization, the brittleness of the world socio-economic system or to question its long-term sustainability. It is clear that the relationships between the different actors in the system are becoming more and more complex while their interdependencies are increasing. This is precisely the state of the system that might be explained by the tenets of chaos theory.
The last millennium came to a close with the resource-intensive campaign to prevent the anticipated damages of Y2K, the bug that was supposed to crash all computer activity on December 31, 1999. Apparently, to the general public at least, nothing serious occurred at midnight and some concluded, a little too quickly, that the threat was only a fabrication of IT consultants to ensure their business development for the previous three years. For risk management professionals Y2K was a vivid illustration of the fundamental paradox of the trade: the catastrophe was avoided thanks to heavy investments, and the success of the risk treatment avoided IT Armageddon! In France, it was ironic, however, that the Y2K crisis teams were activated when two exceptional storms, Martin and Luther, with winds close to 150 miles per hour hit the country right in the middle of the Christmas season in 1999. This is the main reason why the railway system, SNCF, and the electricity utility, EDF, were able to react promptly and save the day, and enhance their reputation.
The third millennium started with the fireworks of the September 11 terrorists attacks and ten days later by the AZF1 complex explosion in Toulouse; a series of financial catastrophes, initiated as early as August 2001 with the Enron collapse; and natural events such as the tsunami in Southeast Asia at Christmas 2004, and more recently in the spring and summer of 2011 the tsunami in Japan and catastrophic floods in several countries. These events and others revealed dependencies, sometimes to unaware actors who suffered massive contingent business interruptions. The rise of aberrant situations brings about ruptures that leaders in the private as well as the public sectors must learn to address aggressively in order to avoid their degenerating into full-blown crises.
In such a context, it is all too clear that the traditional and static approach to managing risk, mainly organized around the purchase of insurance cover to protect physical assets, has become totally obsolete. We are well overdue in making room for a dynamic and global vision, integrating recently identified âblack swanâ type risks like the interconnected effects of global supply chain and terrorism. It is essential to encompass the world of threats and opportunities, not only from an inside out view formed at the board level, but enlightened by an outside in view reflecting the expectations and fears of all main stakeholders.
