Corporate Risk Management - Case Study Example

Swarna1 P.Swarnalatha ID 5448 Order # 139084 15.11.2006. Corporate risk management The management of any corporate project must concentrate on strategic control of risks involved. Successful project management certainly aims at reducing and minimizing risks. The understanding the original meaning and nature of risk is very much needed for any corporate entity. Risk can be defined as uncertainty of outcome after the task is performed (FN 1). It may be in the form of positive opportunity or negative threat. It is opined that some amount of risk taking is inevitable if the corporate project is to achieve its objectives. The risk management targets successful tackling of any element of risk under any circumstance. It also aims at keeping exposure to an acceptable level in a cost-effective way. Risk management must consider the following aspects: It should have ready made access to reliable and first hand primary information about risks. It must integrate decision-making processes supported by a framework of risk analysis and evaluation It should focus on processes to monitor risks and infuse right balance of control for effective risk management. As the nature of risk is highly varying in nature depending upon the context and corporate environment, the case study of any important disaster and the risk management strategies followed before the happening of such incident may be of high relevance. This will certainly through a light on best alternate risk management measures which would have minimized the exposure to the risk. Keeping these points in view, Chernobyl disaster which devastated several millions of human lives has been selected for the case study. Attempt has been made to find out the causes and consequences of disaster, risk management measures taken and lessons learnt from this incident. One of the major objectives of the study is to remember the tragedy of Chernobyl and to make risk management plan in order to improve security of all nuclear power plants all over the world and this horror and pain are not to be repeated. The biggest disaster experienced in nuclear power plant situated in Chernobyl on 25th April, 1986 is named as Chernobyl disaster. It happened due to ill made technology and resulted in killing of several thousands of people. The Chernobyl power station is located near the Belarus-Ukraine border and four kilometres away from the town of Pripyat, which was built especially for the power station employees. At the time of the accident, 45 000 people were housed there. The accident took place in reactor no. 4 at the Chernobyl nuclear power during a test. The operating staff wanted to test whether the turbines could produce sufficient energy to keep the coolant pumps running in the event of a loss of power until the emergency diesel generator was activated. The safety systems were intentionally switched off to prevent the test run of the reactor being interrupted. For conducting the test, the reactor had to be powered down to 25 per cent of its capacity. However it could not be performed successfully and the reactor power level fell to less than 1 per cent forcing the crew to increase the power slowly There was a sudden power surge immediately after the start of the test and the reactors emergency shutdown also failed which led to sudden rise of power level and temperature. It is followed by violent explosion, melting of fuel rods, ignition of graphite covering and eruption of sealing cap. The temperatures raised to as high as 2000°C and the radioactive fission products released into the atmosphere. Ukraine, Belarus and Russia are the most affected countries due to this disaster. This has made other countries highly alert to keep a strong watch on the management of nuclear power plants with a special focus on risk management. For effective risk management strategy for preventing these types of disasters, one has to concentrate on the specific causes of the incident. The causes of the accident are described as a fateful combination of human error and imperfect technology. It is well accepted that the test during which the accident happened was conducted under time pressure. Several flaws in the technical design of the reactor type are thought to have been the main reason. The handling of the control rods and braking processes were not proper. Unsafe operation of the graphite-moderated RBMK reactors was also one of the factors (FN 2). Unawareness about the past incidents is also one of the factors. A similar accident but with less intensity had already occurred in a reactor of the same type in Lithuania in 1983. Unfortunately the operating crew in Chernobyl were not aware about this incident. Risk management plan will involve the analysis of all these factors. However, the analysis based on stage wise risk management cycle would of immense help for effective corporate risk management and one should take Chernobyl experience to look forward for maintaining more accuracy (FN 3). The risk management cycle includes the following stages: 1. Risk identification : It includes the identification of existing risk and giving it a meaningful name. The Chernobyl power plant management didn’t seem to formulate any accurate risk management plan. Therefore it miserably failed in identification of probability of such accident. They could not identify the fault in technical design. In addition, they also failed in predicting the danger posed by test run and switching off the safety devices. Moreover, the successful risk identification needs thorough collection and analysis of facts of any past accidents which was not taken care in case of Chernobyl power plant because of which it could not get access to the Lithuania accident experienced in 1983. 2. Risk Analysis: It follows the risk identification stage. It involves determining the severity of the risk according to the risk matrix. It also classifies the risk as negligible (low to medium severity, low likelihood of occurrence, medium and high stages). In case of Chernobyl disaster, no concrete efforts were made for effective risk analysis. As the risk identification was not properly done it led to severe failure in terms of integrated risk analysis. They always thought that risk was minimum and hence did not anticipate any probable accident due to switching off the safety devices. They could not measure the intensity of risk involved with faulty design of nuclear reactors. The possibility of uncontrolled reactor system leading to devastating human lives was never anticipated under risk analysis plan of Chernobyl power plant. The power plant operators were not trained regarding the possible problems in nuclear power plants which led to their poor prepared ness for the incident. However it made appreciable efforts in establishing such a big nuclear power plant with in a reasonable time frame. 3. Risk planning: Risk analysis is closely followed by the stage of risk planning. It helps the corporate management to decide how to combat the risk based on the risks severity and likelihood of occurrence. No systematic risk planning was implemented in Chernobyl power plant. Basically the severity of the risk was not assessed accurately leading to ineffective risk planning. This was clearly reflected in poor control and faulty design of the control rods placed inside the reactor. The graphite used in the control rods replaced sizeable quantity of coolant that resulted in higher fission reaction leading to increased power output. This was not known to power operators due to lack of sufficient financial package for proper planning relating to on-job training programmes. Lack of necessary financial support also resulted in compromise over design of containment i.e. partial containment leading to higher radio active contamination. Effective risk handling decisions like proper coordination and communication between power plant operators and safety personnel could not be taken (FN 4). 4. Risk Mitigation stage or implementation stage: In this stage, bring the plan formulated in the previous phase as closely as possible to action for combating the risk. If this approach does not work, revisit the previous phase and make a new plan. If the plan works, continue analyzing the risk to determine whether it has been reduced to an acceptable severity level. In case of Chernobyl power plant, the plan formulated was very weak as it did not include the effective risk identification and analysis. Moreover, some of the remedial measures were quite unsuccessful. To put out the fire and thus stop the release of radioactive materials, firefighters pumped cooling water into the core of the reactor during the first ten hours after the accident. This unsuccessful attempt to put out the fire was then abandoned. Helicopters dropped 2400 tonnes of lead and 1800 tonnes of sand to try to smother the fire and absorb the radiation which was unsuccessful. In fact they made the situation worse: heat accumulated beneath the dumped materials. The temperature in the reactor rose again, and thus also the quantity of radiation emerging from it. In the final phase of firefighting, the core of the reactor was cooled with nitrogen which was satisfactory. On humanitarian front, the 45 000 inhabitants of Pripyat, 4 km away, were evacuated in buses. 1,30,000 people living within a radius of 30 km around the reactor were also evacuated from the 76 settlements to prevent the contamination. The official distribution of iodine was done very late. These were intended to prevent the absorption of radioactive iodine by the thyroid but the irony is that greatest proportion of radioactive iodine had already been released in the first ten days following the accident. In this manner the risk mitigation stage allowed several mistakes which could have been avoided. 5. Risk monitoring and tracking: It follows the stage of risk mitigation. Its major objective is to ensure the continued control of risk. Once the risk is mitigated to an acceptable severity level, the risk should be tracked to ensure the continued management of the risk. If at any time the risk seems to resurface, the risk management cycle should begin again, starting with the analysis phase. Chernobyl power plant failed in this stage also. As the earlier stages of the risk management were not properly implemented, the risk tracking was also improperly done which resulted in disaster. Moreover, the partial containment was designed for reducing the plant cost which resulted in higher rate of release of radio active contaminants. Had they followed accurate risk mitigation strategy, the rate of radio active contamination would have been greatly reduced. These stages also include risk measurement stage which generally follows the risk identification stage. The quantification of risk will be done under this stage. Chernobyl power plant disaster reflects the failure in this stage also. By depicting risk distributions, it focuses managements attention on areas that need to be watched (FN 5). Key elements of risk management strategy: To avoid or minimize thee type of disasters one has to incorporate the following key elements of risk management strategy. 1. Learning lessons from the past incidents: Had the management team of Chernobyl power plant was aware of Lithuania incident it would have certainly implemented a stronger risk management plan. Therefore all nuclear power plants must try to learn lessons from these types of disasters. 2. Accurate technical design of nuclear reactors is mandatory for effective risk management. 3. Continuous operation of safety devices id needed. 4. Nuclear and radio active resistance zone must be provided. 5. Keeping the inhabitants away from the power plants will minimize the risk. 6. Review of reactor safety and emergency planning. 7. Increase the number of nuclear energy inspectors is very much essential for effective risk management. 8. Quality assurance programmes and staff training on risk. management at nuclear power plants is crucial. 9. Installation of catalytic recombiners to ensure that, in the event of a reactor accident, the hydrogen released would combine with oxygen to form water, thereby preventing an explosion. 10. Timely distribution of iodine tablets immediately after the disasters is important. 11. Maintaining the additional research staff on stand by for rapid measurement of radiation surrounding the nuclear power plant. The research strengthening will certainly enhance the risk management strategy (FN 6). 12. Fast communication and early warning forecasting about the incident is crucial in saving the human lives and hence forms the core component of risk management plan. Conclusion: Thorough understanding of stages and principles of corporate risk management cycle would certainly aid in providing an effective corporate micro climate. It underlines the need for critical analysis of important case studies like Chernobyl disaster. The integrated risk management strategies in all the nuclear power plants must include all the necessary preventive and management measures based on the lessons learnt from Chernobyl disaster so that the risk due to such incidents can be minimized. References: FN 1 : S.E. Harrington and G. R. Niehaus, Risk Management and Insurance, 2nd edition, McGraw Hill International, 2004. FN 2: Richard Wilson "More on Chernobyl, ten years later - the atomic power station accident in Chernobyl, Russia". Environment. June 1996. FindArticles.com. 07 Nov. 2006. http://www.findarticles.com/p/articles/mi_m1076/is_n5_v38/ai_18693291 FN 3 : D. W. Dockery et al., "An Association Between Air Pollution and Mortality in Six U.S. Cities," New England Journal of Medicine 329 (1993): 1753-59. FN4: Chernobyl disaster. http://en.wikipedia.org/wiki/Chernobyl_accident FN 5: Kathleen M. Beans "Effective Risk Management Is Sought by Regulators, Bondholders, and Shareholders". RMA Journal, The. Sept 2001. http://www.findarticles.com/p/articles/mi_m0ITW/is_1_84/ai_n14896964 FN 6: Jee Meng Chen "Risk managements missing link". RMA Journal, The. Dec 2003. http://www.findarticles.com/p/articles/mi_m0ITW/is_4_86/ai_n14897416. Read More