The life of a consultant includes many meals in restaurants where even the salads have at least something deep fried. So when nice weather hits Montreal, I bike to and from the office, hoping to burn off some of the unavoidable calories that come with the job. Yesterday, my ride home was interrupted by the season’s first truly nasty thunderstorm. The precursors were there: charcoal skies, growing winds and the first spatter of rain. I ducked into the first available shelter and started thinking about my chances of being turned to cinder by lightning.
A Google search on my iPhone turned up unsurprising results: relax, in any given year, a person has about a 1 in 700,000 of being struck by lightning. As bolts cracked all around me, I started thinking about how misleading statistics can be. After all, one thing almost all people have in common when struck by lightning is they were outside in a thunderstorm. On a clear day, my chances of being struck by lightning are much less than 1 in 700,000. In the middle of a storm on a soccer field? Probably many, many times greater than 1 in 700,000. My exposure to the risk greatly intensifies the threat that risk poses to me.
So here’s where the bike ride has meaning in terms of supply chain. When undertaking a risk management and disaster planning program, companies must be very careful to characterize and address risks in two ways.
One. How often and under what conditions is our supply chain exposed to this risk?
What actions can the company take to minimize this exposure. In my case, that would mean not riding my bike when thunderstorms are forecast.
Two. What is the magnitude of the risk when our supply chain is exposed?
What actions can the company take to reduce the magnitude of the risk when exposed. In my case, that would mean seeking shelter – which I did – the minute distant rumbles can be heard.
A company may perceive, in the main, that a risk to the supply chain is small. It may only be small because the frequency of exposure is low; once exposed, the threat posed by the risk could be catastrophic – like being struck by lightning. Companies manage risks by reducing the exposure frequency and taking action to turn catastrophic risks into something manageable.