The Titanic: An Analogy of Enterprise Risk
As we close out 2012 let us roll the years back from 2012 to 1912. One hundred years a go was the disaster of the Titanic. What can we learn from it today?
I have been told that Captain E.J. Smith stated before the Titanic set sail, “Never in all history have we harnessed such formidable technology. Every scientific advancement known to man has been incorporated into its design. The operational controls are sound and foolproof!” In fact, the newspapers ran with headlines that stated UNSINKABLE.
What went wrong with the Titanic? Yes, it hit an iceberg. What truly went wrong? The lessons we learn from the Titanic can help us understand and make a case for enterprise risk management today. I do not claim to be a Titanic historian or expert, but in my limited understanding I have identified the following things that went wrong:
- Overconfidence. The strategy and design of the ship led to over confidence – the first too big to fail. Not only with the Captain, but with the media/press and everyone else involved.
- Health and safety. To my knowledge the Titanic was fully compliant with health and safety requirements of the day – the fact still remains that there were not enough life preservers and life boats for the number of passengers on board. There was time to get off the boat – but there was no place to go.
- Design. I understand that the size of the propeller and rudder were to small for the massive size of the ship which limited its maneuverability around objects.
- Quality. There is speculation that the iron ore in the rivets was of an inferior quality. The rivets were weak that held the seams of the ship together, when it struck the iceberg the gash opened and the ocean waters flooded in.
- Ignorance. There were warnings of icebergs in the area that were communicated to the Titanic. The response from the Titanic was SHUT UP we are tired of hearing about it.
- Inattention. It is understood that someone was not paying close attention on watch which caused them to confront disaster.
- Strategy. I have read that the Titanic was designed to stay afloat with four compartments flooded. They were headed to the iceberg dead on and decided to turn and hit it on the side. If they would have hit it head on only two compartments would have flooded. When they hit it on the side six compartments flooded.
The Titanic was a complex operation. Business today is complex but also distributed and requires a strong enterprise risk management strategy. One that sees the big picture but can also get down into the “coal face” of the business. One that can show the relationship of risk and provide analysis at a strategy view as well as specific process or departmental view. We need to understand the breadth and depth of risk in the context of strategy and operations of the business.
As you enter 2013 and are finalizing your strategic plans have you thought about the range of risks to those plans? How integrated is risk management with strategic planning? How integrated is risk management with business operations? Will you be caught by surprise because you failed to see how risk in different parts of the organization can work in concert to bring disaster or failure to meet objectives? I am anxious to hear your thoughts on risk management .
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