Archive for July, 2015

Thinking the Unthinkable (But Highly Plausible)

Tuesday, July 21st, 2015
At Risk

At Risk

When we think of earthquake risks, we tend to think of the San Andreas fault in California. Indeed, “San Andreas” the movie, was a big hit at the movie theaters last summer. But a deadlier fault line lies to the north: the Cascadia zone runs approximately 700 miles from northern California to Vancouver. And if risk models have any value, that area is overdue for a severe earthquake.

This week’s edition of The New Yorker presents a terrifying, but altogether realistic scenario, of how an earthquake within the plausible risk scenarios would be the “worst natural disaster in the history of North America. The disaster scenario modeling developed by the U.S. Federal Emergency Management Agency for an earthquake in the Pacific Northwest projects, according to the New Yorker article, that “nearly thirteen thousand people will die in the Cascadia earthquake and {follow-on} tsunami. Another twenty-seven thousand will be injured, and the agency expects that it will need to provide shelter for a million displaced people, and food and water for another two and a half million.” And, unlike Japan, which has effective emergency warning systems in place and robust building codes that take into consideration seismic shocks, the Pacific Northwest is unprepared for such a disaster. It is long past time to start demanding greater public investment in disaster resilience and possibly tax credits for retrofitting buildings for earthquake and flood hazards. We are deluding ourselves if we think we are immune to the scope and scale of comparable disasters that devastated the Asian-Pacific region.

 

 

What Is Your Risk Tolerance?

Monday, July 20th, 2015
It is all relative

It is all relative

Marketing guru Seth Godin posted a blog entry today about the paralyzing consequences of irrational fears, such as shark attacks (which, notwithstanding television news stories, are extremely rare events). He advises that it is “better to prepare for a hazard both likely and avoidable instead”. His comments were in the context of taking on challenges by setting aside irrational fears but, of course, are exactly consistent with the advice given in Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses. It is a mistake to focus your attention on high-severity, low-frequency risks, such as hurricanes and earthquakes as the fear can be paralyzing. Better to prepare for the “everyday disasters”, such as human errors, computer crashes, fires and the like. This approach provides an immediate benefit against a more imminent threat at a more reasonable cost. And it gradually builds resilience against the more severe, but less likely, threats.

Attorney Brett Dawson offered his take on risk tolerance at a legal workshop for small businesses at the SCORE (Service Corps of Retired Executives) “Learn to Soar” program in Rochester, NY earlier this month. I have pages of notes from that workshop to capture his helpful insights from years of advising small business owners. He said that many business owners tend to dismiss risks as “unlikely as being struck by lightning.” But, in fact, 2500 people are struck by lightning each year in the United States and 60 of them die. While being struck by lightning is not likely to happen, it is not a non-zero risk, the point being, if there is a risk, however negligible, that you can eliminate, do so, as there is no benefit to assuming it.  Whether your point of reference is a shark attack or a lightning strike, a pragmatic approach to risk tolerance is best.

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Sunday, July 19th, 2015

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Saturday, July 18th, 2015

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Friday, July 17th, 2015

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Thursday, July 16th, 2015

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Wednesday, July 15th, 2015

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Possible Impact of Climate Change on Small Business Finances

Tuesday, July 14th, 2015
No Longer Sustainable

No Longer Sustainable

The impact of climate change considerations on investment decisions has been a subject of increasing coverage in the business news. Institutional investors as diverse as the Church of England and AXA (a global insurance company headquartered in Paris) have divested their portfolios of stock holdings in fossil fuel companies, citing concerns about rising greenhouse gases. At the same time, interest in investing in “green” or sustainable energy companies is growing. Investors who seek more information about the carbon emissions of major companies find the Carbon Disclosure Project to be very helpful.  CDP publishes information about the carbon emissions and offsets of major businesses to allow investors to assess the environmental impact of these companies. The insurance industry has been a leader in this movement, largely because of concerns that increase carbon emissions cause climate change and with it, increasingly frequent and severe weather-related disasters.

Now the focus is turning on the impact of climate change on households and small businesses. I was quoted in an article that U.S. News & World Report published today considering how climate change will affect property values, energy costs and food prices. We know from the work done by the United Nations Development Program and others that every dollar invested in risk mitigation programs reduces losses from weather-related hazards by nineteen dollars. I expect that in the near future we will learn more about the economics of climate change adaptation measures for our longer-term security,

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Monday, July 13th, 2015

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Sunday, July 12th, 2015

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