One vital lesson from the Coronavirus response will be the way risk is assessed and mitigated, especially those risks recognised as high impact but low frequency. These we tend to call Black Swan risks after the author Nassim Taleb’s book of the same name. In a risk register they are normally downgraded if the frequency of occurrence or probability is considered rare enough to be irrelevant. They can also been downgraded if the cost of mitigation is considered disproportionate and fails a cost-benefit analysis. This might have been why the NHS was caught short this time.
While the media focuses on the failure of the NHS to provide sufficient contingency for the coronavirus, let’s reflect on other sectors where public service provision is frequently criticised. This time last year the country had a cold snap the media labelled the ‘Beast from the East’: council road gritters didn’t have enough salt, rail operators didn’t have enough ant-freeze for points, and airports didn’t have enough de-icer for planes. This year there are snow ploughs ready but no snow! For public transport providers it is almost impossible to anticipate severe weather events.
Flooding is another weather-related emergency that enables the media to attack the authorities, yet probability modelling should not rely too heavily on historical flood levels. Once you factor in an increase in deforestation of river catchment areas, residential and commercial building on river floodplains coupled with a rise in rainfall average, then flood propensity will rise. How much local councils should spend on flood defence measures becomes a political decision based on spreading limited funds across a number of public service provisions.
The challenge for those tasked with maintaining a risk register is to ensure that rare or infrequent events are better understood. It is not the impact severity that is in question but the way frequency is predicted and thus the priority level the risk is given. Some former policy makers are now saying that a pandemic such as coronavirus was recognised as a level one risk priority, but that it was not allocated contingency funding due to higher priorities for budget allocation. This is where the cost-benefit analysis brings into sharp contrast the opportunity cost of public health and safety.
Look for a moment at the government policy on smart motorways. When launched this was a cheap way to increase traffic flow through adding a fourth lane at the expense of a hard shoulder. Increasing reliability of cars meant this lane was sparsely used and could be reassigned for traffic flow not breakdown. After several fatal accidents caused by breakdown collisions in this inside lane, it became apparent that the policy was dangerous and has now been halted. Fatal collisions were perceived as acceptably infrequent in the original policy, but became unacceptable with higher frequency. It is the frequency of occurrence that needs attention not the severity of outcome.
Some people have claimed that coronavirus was not a Black Swan because it was not a complete surprise; health experts had long anticipated a new pathogen after MERS and SARS. However a Black Swan event is one that is known to be high impact but considered low frequency. It is one that ranks high on the risk importance index yet remains low on the risk urgency one. The challenge for operational risk managers now is to ensure any urgency index is reviewed and updated…frequently.
