Sunday, March 20, 2011

Risk Mismanagement

How risky is a nuclear plant, an offshore drilling platform or an investment bank? When disaster strikes, we invariably hear that an unlikely confluence of events (the proverbial perfect storm) led to the catastrophe. Economist Nancy Folbre, writing in the New York Times Economix blog, sees a common thread in the risk management mistakes that led to disasters on Wall Street and at the Fukushima Daiichi nuclear plant in Japan:
Early warnings about potential nuclear dangers in Japan and about Wall Street’s propensity for risk-taking without liability were both dismissed as paranoid anticipation of low-probability events. With both disasters, regulatory failures set the stage, and taxpayers will end up paying most of the social costs.

Effective risk management is central to economic efficiency. Yet major players in both crises have insisted that they should not be held accountable for risks they underestimated.
A common fallacy is thinking of the contributing causes of a disaster as unrelated when they are often related. The investment bankers and traders thought the simultaneous collapse of their various investments and derivatives couldn't happen, but in a market meltdown, they all became highly correlated and crashed in unison. Likewise the Japanese engineers imagined that the simultaneous breakdowns of diesel backup generators, cooling valves and pumps was highly unlikely, but the cascading failures were all caused by one event. In each case, the engineers and managers never understood how so many components could fail at once.

This fallacy can lead to a tragic underestimation of risk. Take three components of a complex system. If the chance of failure for any one component is 1 percent, then the odds that all three could fail at the same time would be one in a million
if the three events are unrelated. But if breakdown of one component contributes to, or is correlated to, the failure of another, the chance that all three could fail would be closer to one in a hundred, rather than one in a million.

Floyd Norris, also writing in the Times, points out that managers who underestimate risk can end up taking on even larger risks as a results:
Four years ago, there were fears of a financial meltdown — a term borrowed from the nuclear power industry. Now there are fears of a real meltdown.

Comparing the two events may risk seeming insensitive to the rising human toll in northern Japan, but there are similarities in causation. In each case, overconfidence born of experience led to increased risks once a disaster unfolded.
These errors in risk management are compounded and repeated when the engineers and managers allow themselves to believe that they were overcome by extremely unlikely events. And thus, we hear over and over again that yet another disaster was caused by yet another perfect storm.

3 Comments:

Anonymous Anonymous said...

"Japan nuke plant operator missed inspections

By MARI YAMAGUCHI, Associated Press Mari Yamaguchi, Associated Press – Mon Mar 21, 6:11 am ET
TOKYO –

Japan's nuclear safety agency criticized the operator of the country's troubled nuclear complex for repeatedly failing to make inspections of critical equipment in the weeks before it was crippled in this month's massive quake and tsunami.

In a report released March 2, nine days before the disasters, the Nuclear and Industrial Safety Agency cited Tokyo Electric Power Co. for ignoring inspection schedules and failing to examine 33 pieces of equipment at the Fukushima Dai-ichi nuclear plant.

Among the machinery the utility missed were parts crucial to the cooling systems needed to keep Fukushima's six nuclear reactors and their fuel storage pools from overheating: emergency diesel generators in Unit 3, pumps for reactors in Units 1 and 2 and generator equipment for Unit 4.

In the days since the March 11 disasters knocked out the complex's power supplies, Fukushima has leaked radioactive gas and triggered a nuclear crisis. In the aftermath, the safety agency has pointed to one mistake — backup generators were stored in the basement and so were easily swamped.

Utility companies often skip inspections because they don't want to take equipment offline outside of scheduled maintenance periods. Nuclear safety officials have declined to say that the violations cited in the report or the location of the backup generators contributed to the current crisis.

"For now, we cannot immediately link this to the latest accident. We still have to wait for thorough investigation after we manage to settle the crisis," agency official Ryohei Shiomi said Monday.

Overall the report adds to a disturbing catalog of safety, maintenance and other lapses by Tokyo Electric, Japan's wealthiest utility with influence over the safety agency that is supposed to regulate it.

The safety agency report was a follow-up for other Tokyo Electric transgressions. Another nuclear plant run by the utility, Kashiwazaki Kariwa, experienced previously what was one of Japan's worst nuclear accidents, when an earthquake in 2007 caused malfunctions — fires, burst pipes, leaks of radioactive water spills — and led to at least eight deaths.

After Tokyo Electric missed 117 inspections at Kashiwazaki, the nuclear safety agency late last year ordered the utility to conduct a companywide review of its inspection systems. In response, Tokyo Electric reported that it skipped 54 separate inspections, the 33 at Fukushima Dai-ichi — whose Unit 1 is one of Japan's oldest reactors in operation — and the rest at the nearby Fukushima Daini. The latter plant shut down and was quickly brought under control after the earthquake and tsunami.

The March 2 report said that the missed inspections did not present an immediate risk to safety and gave Tokyo Electric until June 2 to respond."

11:17 AM, March 21, 2011  
Anonymous Anonymous said...

One would instead think of a "perfect storm" as unfortunate weather due to perhaps high pressure, warm air and an abundance of moisture and winds. If man-made conditions contribute, man needs to be responsible for his contributions.

Ignorance cannot be an excuse while dealing in nuclear materials/plant security/environmental conditions/surrounding populations.

Regarding nuclear power plants, practically anyone would know, backup generators should not be stored in a basement in an area prone to flooding. Anyone who wouldn't know this, shouldn't be involved with nuclear plant operations.

When you factor in the human elements of greed, negligence, incompetence, etc. as part of a "perfect storm," there will be minor to catastrophic conditions waiting for the right set of permitted/ignored combined events, whether they involve incompetent or dishonest personnel, permitted nuclear reactions, improperly stored chemical wastes, lack of structural integrity, technological incapability, etc.

When the 'human element factor' of safety systems allows for the risks taken by a minor inspector, industrial executive or political policy, being able to condemn thousands, causing suffering, costing lives and property, as well as enabling physical and financial destruction to natural environments and their dependent economies - there will be no safe nuclear facility.

An "I'm sorry" after the fact doesn't change the faulty industrial/governmental systems that skips inspections, falsifies reports, allows deadly stockpiles to accumulate, overlooks emergency planning, structural integrity of surrounding conditions or permits the use of neighbors' "back yards" as "emergency planning areas" due to the 'greed/negligence' factor.

If an executive/an elected official, makes the knowingly faulty decision to ignore safety, they must be held accountable for all lives and property their "decision/decision by default" encompasses. Legal action shouldn't wait for the 'disaster to occur, but should take place as soon as a back up employee, an inspector, a regulatory agency, discovers the faulty practice, recognizes the oversight, realizes the improper, unsafe or outdated method, etc. This should also work retroactively to eliminate ''faulty personnel practices (even 'faulty' political pressures) from a nuclear site.

Something as seemingly small as a skipped or faulty inspection or as large as a postponed major review involving up to date mechanical/safety concerns, (how many situations like this exist in America today?) can involve crimes against society of the greatest magnitude.

Such crime must not be routinely overlooked but dealt with immediately and severely, as there are those who would willingly chose to promote their own and/or corporate interests, choosing instead, homegrown terror for their fellow countrymen.

2:28 PM, March 21, 2011  
Blogger Nancy Willing said...

Plus, Frieda Berryhill found an article showing that the wind farms stood up to the calamity. Link on DE Way.

10:04 AM, March 22, 2011  

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