Good Risk Management Means No Buck-Passing

BRIAN BARNIER | Harvard Business Review

We’ve all experienced buck-passing. In customer support, for example — each time dialing a new number and grinding your way through the options. This wastes time for users and damages corporate reputations. Yet, nobody dies in buck-passing — right?

Tragically, sometimes they do. Eight people were killed and more injured in the San Bruno, Calif., pipeline explosion in September 2010. Pacific Gas & Electric (PG&E) estimated that 47.6 million standard cubic feet of natural gas were released. The gas exploded, the fire destroyed 38 homes and damaged 70. Firefighting operations continued for two days.

A few weeks ago, the U.S. National Transportation Safety Board (NTSB) issued a report that cited multiple failures by PG&E and government regulators. In reading through the NTSB’s 28 findings, 29 new recommendations, and 10 repeated recommendations, I started to see a pattern that looked a bit like buck-passing:

• Why didn’t PG&E conduct pressure tests? Regulators didn’t require them. So what? PG&E could still have conducted intelligent risk management in the interest of its own shareholders.

• PG&E didn’t have a comprehensive emergency response plan. According to the NTSB findings, it took PG&E over 15 minutes to understand what its sensor readings meant, more time to understand the problem, over 90 minutes to turn off the gas. Why an insufficient plan? Where there no best practices to turn to? Was this a brand-new situation to the world? Of course not: PG&E had been through a fatal pipeline explosion in 2008. In addition, consider the U.S. Federal Emergency Management Agency’s post-Katrina updated material on incident management systems, which includes free online training.

• Next, why didn’t the California regulators act? Lack of knowledge? Nope, lots of that available. Maybe a lack of resources? That’s a good one — so pass the buck to the governor and legislature.

We all, having spent time in complex organizations, know how easy it is to pass the buck. Organizations have lots of built in excuses — functional silos, product silos, geographic silos, communication, chain of command, budget allocations and codes, turf, “before my time.” This plays out daily in product failures, supply chain disruptions, frauds, missed sales forecasts and more.

“Buck-Passing Risk” can be measured in two ways. First, the process risk tracked by metrics such as organizational tolerance for poor clarity in roles, accountability, transparency and limited depth of analysis. Second, the outcome risk — the “bad things” that happen in financial and operational performance metrics as a result of the process problems. Buck-passing risk is insidious because it can become so pervasive and exacerbate so many other risks. It’s like a tough weed in your lawn: when drought comes, it survives better than the rest of the lawn.

The choice facing you is how to act to measure and proactively manage this risk. Not just with a policy and wall-poster campaign that says “Be Accountable,” but with a set of principles from the board of directors down that establishes proper conduct and demonstrates that behavior throughout the entire organization. Middle managers must model and transmit the CEO’s directive to the front line, and front-line employees must own risk management. They are often the eyes, ears, and hands on whom people’s lives (or at least livelihoods) depend when it comes to detecting the gas leak, or finding and shutting off the valve. They are the heroes of action movies and real life.

Too many people just take the easy way out by passing the buck — outta sight, outta mind, off my desk, not my problem. Stomping out buck passing rivets people to “in charge” roles, spotlights the risk they own and fosters risk-return balance in decisions. This clarity strengthens people to press forward with the case to prevent. Changing the human dynamics around buck passing can be your catalyst for saving human lives and fortunes.

Brian Barnier, of ValueBridge Advisors, is the author of The Operational Risk Handbook for Financial Companies (Harriman House, 2011).

Thanks to @Jensenmaritime for retweeting the link to the article: that was how I became aware of it.🙂

Leave a comment

Filed under Articles

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s