Mastering Catastrophic Risk

Book excerpt: A profound and insightful look at how company leaders prepare for and respond to shocks and crises that threaten their business. Successful firms strategically manage and are more accurate in their assessment of large-scale risks. Doing so is increasingly challenging given the pace of change, whether financial, technological, regulatory, or environmental. Mastering Catastrophic Risk provides real-world practical insights into how large companies are responding to this new reality and develops a framework for smarter thinking about events that can damage a business. As leading authorities on risk management, strategy, and company leadership, Howard Kunreuther and Michael Useem take us on a groundbreaking tour of firms' decision making process. They demonstrate how improving readiness for and resilience against future shocks is now an integral part of company strategy. Using the "DISRUPT" model they have developed, they highlight the seven primary Drivers of disruption: Interdependencies increase exposure; Short-term focus results in limited vision; Regulations require change and constrain opportunities; Urbanization increases the costs of disasters; Probabilities of disasters have increased; and Transparency has enhanced public awareness of problems and impacts on firms' reputations. Some disruptions can be anticipated, while others arrive without warning. Their onset stresses decision makers, impairs company operations, and may even put the enterprise at risk. The bottom-line: business leaders and their governing boards face ever more challenging disruptions and must be ever more on guard. If your company is hit tomorrow, will it bounce back, or drown?