The Subject of Risk Management and Loss Prevention, Essay Example

Abstract

This paper examines the subject of risk management and loss prevention and how these procedures work in situations of catastrophic losses.  Particular reference is focused upon the Hurricane Katrina disaster which impacted New Orleans in the State of Louisiana. The paper analyses these events and describes the successes and failures from the Risk Management perspective.

Introduction

Risk Management may apply to that of an individual and small business. Vulnerability means being susceptible to the impact of one or more events that may be within or external to your control of influence.  For example: one of the biggest risks that an individual faces is that of the personal mortgage on your property. If you fail to maintain the regular monthly payments, then the Bank or Finance company may foreclose upon you. As such they may seize your property and place this for sale in order to redeem their investment.  This has two immediate impacts on you as an individual (1) You are suddenly homeless and without a place to live (2) Your credit rating is adversely impacted making it very difficult to obtain another mortgage or personal loan.  This may even make it difficult for you to obtain a rental agreement owing to the poor credit rating.

Most small businesses have what is termed as “Limited Liability” meaning that the business owner has predefined limited liability for the debts and actions of the Company. “Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities” (IRS.gov). This has a significant advantage over the personal liability situation as the creditor has legal remedy only against the personal assets of the business.  Hence the risks and liabilities of the owner of the business are contained within the financial administration of the business.

The situation becomes far more serious when you apply risk Management to that of wider consequences like dealing with potential disasters like the earthquake in Haiti or the event of Hurricane Katrina that impacted New Orleans in Louisiana.  “Hurricane Katrina began as a very low pressure weather system, which strengthened to become a tropical storm and eventually a hurricane as it moved west and neared the Florida coast on the evening of 25 August.” (BBC News, 2005).  New Orleans has been used to dealing with Hurricanes but nothing prepared them for the events that were to follow.

The concept of risk management in emergency planning is such that you try to identify the potential threats from a number of different disaster scenarios. In the case of New Orleans the impact of a severe hurricane would be amongst such planned scenarios. The assessment would consider the impact a hurricane would have on infrastructure, the people, and magnitude of the disaster, emergency aid and relief, cost of the disaster and how to recover from the disaster.

The people and state government in New Orleans had prepared for basic hurricane threat and with the assistance of Federal programs had built drainage channels, relief canals, levees to protect from Mississippi river flooding. Such preventative measures were considered in the light of the type of hurricane force that would strike New Orleans. Nothing had prepared them for what was to come.

Case study – hurricane Katrina

The Hurricane was initially forecast to pass to the east of New Orleans. They predicted that as it passed through it would create large volumes of water from Lake Pontchartain to spill and place a drain on the levee system and as such may cause potential flooding into the City.  At 10.00amm on August 29^th 2005 the National Weather Service issued a catastrophe warning predicting massive flooding and damage to the City.  Many residents at this point started to leave and evacuate the City. Others refused to leave and stockpiled food and water and boarded up their houses to sit out the storm. Mayor Ron Nagan said that such action was inappropriate given the pending severity of the storm and that people should evacuate the City.  On the 28^th August the City had created a refuge of last resort at the Louisiana super dome and had arranged transport links throughout the city to the refuge centre.

When Katrina hit land the following day it was estimated that some 1 million people had heeded the advice and fled the city. Some 100,000 people remained and 20,000 sought refuge in the super dome, President Bush appeared on TV asking residents to heed the evacuation warnings but by then it was really too late. Equally, before Katrina hit the coast of Louisiana the Northern area of Louisiana had already declared a state of emergency because of the flooding in that region.

Impact on the infrastructure

All of the major roads in and out of the City suffered severe damage. A number of bridges had collapsed and many roads were blocked because of the extent of the severe flooding. The International airport had been remarkably unscathed and despite it being closed before the storm hit, they were able to re-open it on the 10^th September to get in commercial cargoes and emergency relief supplies. The Super dome saved many lives and on the 13^th September these people were evacuated to the Astrodome in Texas.

The levee system

The levee system of New Orleans was already considered to be inadequate, long before hurricane Katrina struck the City. The levee system being originally built by the US Army Corps of Engineers. They stated that it was never constricted with the intention of dealing with a magnitude 3 hurricane. The levee became breached in 23 places and resulted in 80% of the City being flooded.  The flooding put most of the City under water for weeks. A later report issued in June 2006 by the US Army Corps of Engineers admitted many faulty design specifications. They further estimated that 2/3rds of the City would have been saved from flooding had the levee system held.  Additional research showed that most of the deaths from Katrina were mainly older people who lived near the breaches in the Levees.

The death tolls

The final  reports issued on the number of dead as a result of Katrina were put at 1,464 people. In early September the Mayor Nagan feared that the death toll could be in the tens of thousands once the clean-up operations had been completed. Body counts began in earnest on September 9^th but prior to this date many witnesses stated that there were large number of corpses that were simply swept away from the flooding. Hence in reality the precise numbers of dead are not really known.

Looting and criminal activity

In the aftermath of Katrina, the opportunity presented itself for criminal activities and widespread looting.  By 30^th August this had spread throughout the City. There was insufficient police to deal with the problem and many of the police simply ignored the issue.  Many looters were armed and a number of shooting incidents were reported.  Most of the looting was about stealing food and water supplies and basic survival instincts kicked into place.  There were some incidents reported of sniper fire from people who refused to be evacuated and leave their homes.  It was not until the 1^st September that 6,500 National Guards arrived in the City and started to regain control. Unfortunately 3,000 of the guards were serving tours of duty in Iraq and as such the force was depleted by 27%.

Federal government response

Before the disaster took place “Before Hurricane Katrina made landfall, Governor Katherine Babineaux Blanco declared a state of emergency in Louisiana on August 26, 2005, and asked President Bush to do the same at the federal level the next day, a request with which he complied” (Chaudhuri, 2010).  The President ordered FEMA to take control and provide whatever resources / assistance was deemed necessary to the State Governor.  FEMA then immediately mobilized 1000 workers in order to render assistance. “FEMA also asked that no firefighters or ambulance crew respond to areas hit by Hurricane Katrina without being first mobilized by local and state authorities,” (Chaudhuri, 2010). This slowed the emergency response time down because of communication problems and confusion in the authority levels and decision making process.  As the situation developed it became apparent that the Government response was inadequate and the communication lines were seriously damaged being a complete abdication of news and events to Washington DC. “Firefighters from around the country were called to the region to help with the federal government’s response.  Many of these firefighters were not able to put their skills to use in rescue operations, but instead had to spend time handing out flyers for FEMA” (Chaudhuri, 2010).

As a result of the Katrina disaster President Bush asked congress to approve $16.7 billion of Federal Aid to help rebuild houses and damaged infrastructure in New Orleans and the surrounding area.  When congress approved this it went down in US history as the largest single housing recovery program.  From the State perspective “Secretary Alphonso Jackson approved Mississippi’s initial Disaster Action Plan to distribute $3.4 billion in CDBG funds.“ (Department of Homeland Security, 2008).  The State of Louisiana is also making one-off grants of up to $30,000 to defray costs associated with flood damage. These will be used in new constriction codes for dealing with hurricane-safe building codes.  Mississippi also provided an additional $1.6 billion to assist public housing authorities.

World response to Katrina

The response to Hurricane Katrina was swift and extremely effective from the international community. It was truly amazing to see the offers of financial support and aid come from all countries of the world. This included large sums of monies donated by both governments and individuals. The world truly felt the pain of the Katrina victims and responded with generosity.  Canada was believed to be the largest international donor country and the only one providing direct military support. In addition to both civilian and government donations. The province of Alberta alone donated $5 million.  The European Union pledged significant support with major contributions from France, Germany and the UK. President Hugo Chavez of Venezuela offered 1 million barrels of oil and $5 million in aid. This was subsequently rejected by the State Department. It was also reported that a further $2 million in aid was offered by a Venezuelan oil company and in addition two hospital units. These were also rejected by the State Department.

Managing the risk

What went right?

• The Mayor and State Government gave early warnings of storm severity and need for evacuation
• The National Weather Service provided impending warning of Katrina
• 1 million people evacuated the area before Katrina struck land
• Airport although initially closed, survived the damage and re-opened to let in relief and supplies
• National Guard provided 3000 troops to restore law and order
• Contractor support in general terms provided provision of aid and support
• President supported evacuation, although somewhat late and placed FEMA in charge

What went wrong?

• Inadequate Planning and preparation for goods and services in the event of a disaster
• Not prepared for a hurricane of the magnitude of Katrina
• FEMA failed to anticipate needs for services
• Lack of leadership and clear co-ordination of responsibilities
• Poor communications – No TV! Reliance upon amateur radio systems, use of the internet
• Insufficient supervision to provide contractor oversight
• Contractor output might have been improved with better management
• Late taking body count – not really known just how many people died
• Late in cleaning up corpses might have resulted in disease outbreak like Cholera
• Politics influenced acceptance of overseas aid in terms of contributions for money and relief
• Admission of inadequate engineering on the building of the levees

Lessons to be learned for the future

One of the key findings was from the Corp of Engineers and the design flaws in the construction of the levees. If these had held then 2/3^rd of the City would have been saved from flooding. This is pivotal in terms of saving lives, maintaining infrastructure and the ability to get relief in.  This must be given a high priority for the future if New Orleans is to survive future disasters.  Given all of the information concerning climate change it is considered a high probability that there will be further Hurricanes like Katrina sweeping through the Gulf of Mexico and putting Cities like New Orleans and Houston at potential risk. New Orleans being particularly vulnerable because of the Mississippi River and risk of major flooding.

Communications is vital in a time of disaster recovery. The inability to keep people informed creates panic, in addition where the most urgent aid and support is required so as to develop prioritization lists.  There is a need to ensure items like Cell phones continue to remain operational and that a communications hub is placed in a secure environment so that radio and satellite technology continue to function even during a time of disaster.

Management and leadership are vital.  There is a need for expedient decision making and the ability to deploy effective resources quickly.  The depletion of the National Guard meant that there was 2,000 less foot soldiers than required as they were in active duty in Iraq. This policy needs to be re-examined as consider the consequences of a major earthquake hitting a City like Los Angeles or San Francisco.  There is a need to maintain adequate homeland security forces for mobilization in the event of a major disaster.

Political considerations should not necessarily override humanitarian aid and support i.e. in the case of the Venezuelan offer.  Under such circumstances all help should be gratefully accepted in order to support the victims of the disaster.  It looks churlish to try and claim high moral ground at a time of extreme crisis.

FEMA needs better strategic planning in order to deal with future crisis situations. They were found to be extremely wanting in a number of important areas.  They need a complete re-think on adequate preparation and planning for future events post-Katrina.

Comparison to hurricane Rita

Hurricane Rita followed on just one month after Katrina and also ultimately reached a Category 5 status ( the final status of Katrina). With Rita winds in the gulf reached 175mph but the weakened considerably in the 36 hours prior to landfall. It landed on the coast near Galveston Texas but they were well prepared for this event and a major evacuation of the City had already taken place. The residents of Galveston took the threat seriously having remembered the severe hurricane on 8^th September 1900 when some 8000 residents lost their lives when it hit them by surprise ( they did not have the sophisticated weather monitoring or warning systems in place at that time. “Lt. Col. Warren Madden, a Hurricane Hunter and meteorologist for The Weather Channel, recorded a peak wind gust of 235 mph (380 km/h) while flying in the eye of the storm, and called Rita “the strongest storm that I’ve ever been in.” (Bookrags, 2010).

So there is no doubt that Rita could have caused considerable damage had the storm not abated whilst still at sea.

Conclusion

It is clear from Climate Change reports that Hurricanes are increasing in both intensity and severity. The USA is vulnerable from the Gulf of Mexico and along the Eastern Seaboard as far as Maine, New Brunswick and the Canadian Maritime Islands.  Emergency planning and preparedness is going to be essential in the future if we are to avoid a significant loss of life. Nobody can really predict events of nature and the magnitudes with which they will strike. We do have the technology however in order to get advance warnings in place and evacuate people from what is considered potential high areas of impact.  Risk Mitigation and planning might reduce the severity of the damage i.e. consider the prevention of flooding in New Orleans by better engineered levees, drainage and water relief systems that protect the City.

People will continue to live in dangerous areas i.e. in earthquake zones, near Volcanoes and in the paths of fierce tornadoes and hurricanes. Knowledge and prevention is the key together with adequate risk assessment of both disaster recovery and business continuation. Each specific area should be examined in light of its proposed area of vulnerability.  Consider Mexico City with 19 million people living in a high risk earthquake zone and near an active volcano. It is clear from recent events that our planet remains very active and equally unpredictable.  “Based on a range of models, it is likely that future tropical cyclones (typhoons and hurricanes) will become more intense, with larger peak wind speeds and more heavy precipitation associated with ongoing increases of tropical SSTs.” (US Global Change Research Program, 2008).

Works Cited

BBC News. (2005). Mapping the destruction of Hurricane Katrina. Retrieved 10 22, 2010, from BBC News: http://news.bbc.co.uk/2/shared/spl/hi/americas/05/katrina/html/

Bookrags. (2010). Hurricane Rita. Retrieved 10 22, 2010, from Bookrags: http://www.bookrags.com/wiki/Hurricane_Rita

Chaudhuri, D. (2010). Government: Response to Katrina. Retrieved 10 22, 2010, from Mission 2010: http://web.mit.edu/12.000/www/m2010/finalwebsite/katrina/government/government-response.html

Department of Homeland Security. (2008, 10 16). The First Year After Hurricane Katrina: What the Federal Government Did. Retrieved 10 22, 2010, from Department of Homeland Security: http://www.dhs.gov/xfoia/archives/gc_1157649340100.shtm

IRS.gov. (2010). Group-Term Life Insurance. Retrieved 5 4, 2010, from http://www.irs.gov/govt/fslg/article/0,,id=110345,00.html

US Global Change Research Program. (2008, 9 15). Hurricanes & Climate Change. Retrieved 10 22, 2010, from US Global Change Research Program: http://www.usgcrp.gov/usgcrp/links/hurricanes.htm