Case study on risk management cycle and strategy of disaster

Risk management cycle and strategy of disaster

Hurricane sandy is one of the major disasters ever to hit North America. The storm caused devastation in parts of the Northeastern United Sates, mid-Atlantic, and the Caribbean. Other parts of the region also experienced effects of the storm but the severity was mild. The storm is linked to the impact of climate change experienced in the globe. Scientists have argued that increased emission of greenhouse gasses is causing one of the major environmental risks of global warming and climate change. Some of the major disasters witnessed in the world today are a direct result of increased emission of greenhouses. Researchers claim that the effect of global warming is likely to increase the frequency of storms in the future and also raise the level of severity of these storms. This paper therefore analyzes the disaster caused by hurricane sandy based on the risk management cycle. The primary aim of the analysis is to explain what was right and what was wrong about the response by United State government. In addition, the paper will provide a disaster management strategy for effective management of similar risks in the future.

Risk management cycle

Risk management is a process that involves mitigation and minimizing of the impact of risks. The cycle of risk management entails four major steps which begin with identification of the risks, evaluation, use of resources to monitor the risk, and impact mitigation. In a risk management cycle, there are series to be followed for the purpose of either preventing the occurrence or reducing impact whenever the risk occurs. In as much as the cycle has four major steps, there are three other minor steps involved. Figure 1 below illustrates all the steps involved in the risk management cycle.

1. Risk identification
Risk identification is the first step in the risk management cycle. Harrington and Niehaus (2003) say that the step is aimed at identifying loss exposure. A checklist can be used to identify the loss exposure. Data can then be obtained from reliable sources and the information be used for future prediction.
The storm affected more than 20 states in the US alone. It is estimated that the overall amount of damage was in the tens of billions of dollars. There were homes destroyed, electricity and other social amenity services were cut short, and on top of all that, at least 131 lives were lost. The total damage cost makes the storm the deadliest to hit mainland US since the 2006 Hurricane Katrina. The flooding caused lead to a cancelation of many services including transport services, telecommunication services, and electricity. It is estimated that the number of customers who went without electricity for more than 24 hours during the pinnacle of the storm were almost five million, spread across the affected states. In some regions, employees were not able to attend work due to the severity of the storm implying that the storm also had indirect impacts to areas such as the economy and labor force. Key economic institutions such as Nasdaq and the New York stock exchange were forced to close down as a result of the storm. An estimate of the total damage is 50 billion dollars, and this money has to be covered by the US government and insurance companies for certain losses.
One of the emerging issues with regards to the impact is the fragility of the country’s infrastructure. For people to go without power for more than 24 hours during a disaster of such magnitude implies a weakness in America’s electric power grid.
2. Measurement of risk
Risk measurement is the second step in the risk management cycle. In this step, there is need to calculate the probability of the risk occurring in the future and the severity of the risk. The main aim of the step is to measure loss probability. The two variables, severity of loss and frequency of loss are most reliable for measuring loss probability. Frequency of loss is measured within a specific time period and for the purposes of this assignment, the last 20 years shall be used for the given period (William, 1998).
As earlier mentioned, hurricane sandy is regarded to be the deadliest storm ever since the occurrence of hurricane Katrina. The geographical region in the US puts it at risk of similar natural disasters. It was only last year that the mainland US was hit by another storm, hurricane Irene. The risk therefore is measured using the proportion of frequency per year to establish the probability of its occurrence. The severity per year ratio is also determined by multiplying the overall cost of the risk to the probability of occurrence.

Hurricane sandy occurred 11 times during the last 20 years.

The frequency = 11/ 20 = 0. 55.
The probability of the risk occurring again is therefore 0. 55
The severity = 0. 55 * 50000000000 = 27500000000 per year.
Standard deviation ought to be included in the calculation however the lack of detailed data makes it hard to calculate the value. The risk measurement for the disaster was based on estimation by considering all the direct and indirect losses involved.
The US government had anticipated for the disaster especially during the hurricane season. Every year, the region experiences a hurricane season, however during some years, the season does not become very active. It is only when the season becomes active that the region can experience high magnitude hurricanes and sometimes more than one hurricane. Based on the experience of earlier disasters including hurricane Katrina and hurricane Irene, the government had put measures to mitigate the impact of similar storms in the future. Even though the preparedness was considered insufficient, the storm brought new lesson to learn for the process of risk management.
Business entities also have to put risk management as part of their plan. It can be noted that hurricane sandy did not only affect homes, but also businesses. The New York stock exchange is a key entity that was brought to a close as a result of the storm.
3. Risk analysis

According to Crockford (1991), risk analysis contains the following four methods: retain, control, avoid, or transfer the risk. The summary of the frequency and severity of each method is provided in the table below






There is no particular strategy that can be used to avoid risks, however, the impact of risks can be mitigated or reduced. It is also difficult to control some risks as it is to retain them because of the costly nature of losses. Despite the unavoidable nature of risks, governments and organizations can transfer other risks as well as avoid others.
The US government had measures in place to monitor the regions that could potentially be hit by the storm thus enabling the relevant agencies to be on the guard and ready to respond. It was anticipated that the storm would cause long term power outage in some of the regions that stood on its path. This caused the state government to put measures in readiness of the power failures. The federal agency responsible for disaster management, FEMA, was closely monitoring the situation disseminating information to the areas projected to be affected. This quick relay of information was an effective strategy in which FEMA used to assist in response, management, and mitigation of the storm. For instance, by working closely with the metrological department, it was possible to warn airlines about the weather and cancel flights during the peak of the storm. Essentially, there was coordination from all the agencies involved under the leadership of FEMA thereby making it easy for appropriate action to be taken various stages of the storm development.
4. Risk decision
Risk decision is the fourth step in the risk management cycle. According to Hertz and Thomas (1983), a residual risk still exists, even if all risks are well-measured. The decision of the US government before the occurrence of the risk was appropriate since it made steps towards avoidance and transfer of the risk. Even though the steps did not help in reducing the impact, the decision to be ready for the storm was still appropriate. There manner in which information was disseminated was fast enough to send warnings in preparation of the storm. This helped the people affected to be aware of the danger ahead. The collaboration by various federal and non governmental agencies helped to manage the situation effectively even before the disaster.
The decisions made during the risk were also appropriate since the government positioned rescue effort in all the affected areas. The American Red Cross society reported that it had a team of more than 4000 workers on the ground dispatching the help needed to the people affected. There were emergency centres set up by the response team. The centres were used as temporary shelters for victims who lost their homes. The government also responded by calling for volunteers. People came in thousands to assist in the rescue effort. Additionally, celebrities and key individuals America raised funds to assist affected families.
5. Implementation
Implementation is the fifth step in the risk management cycle. According to Hertz and Thomas (1983), this step means that it is essential to intensify the effort of implementing decisions that have been made to reduce possible future risk by stressing the procedures of implementation. The decisions made before the risk occurred were effectively implemented. Analysts of the situation have argued that the manner in which FEMA handled the situation is commendable compared to strategies used in earlier incidences.
6. Monitor
Monitor is the sixth step in the risk management cycle. This stage aims to monitor the performance of implementing decisions. The manner in which the US government monitored the disaster can be argued as right. There were several agencies that worked hand in hand to monitor development of the storm before, during, and after. Because of the interagency collaboration, it was easy to timely disseminate information. Since hurricanes are a common phenomenon in North America, preparedness has always been emphasized by the North American governments. During the hurricane season, FEMA, in collaboration with the metrological department and NASA always have to monitor the possibility of a storm and identify the areas falling in its path. There were several means in which the progress report was relayed including social media, television, and radios. At the same time, there was a 24 hour phone lines that were used to air complaints and information by the affected people.
During the occurrence of the disaster, FEMA still continued to monitor development of the storm and assess its severity. It can be noted that in 2011, during hurricane Irene, the storm was detected early enough and the evacuation effort began even before the storm occurred.
7. Policy
Policy is the seventh and final step of the risk management cycle. The aim of the risk management cycle is to collect information and use it to avoid future risk or reduce the risk, as much as possible. The policies regarding disaster management in the US had to be reviewed after the unsuccessful handling of Hurricane Katrina. The main body in charge of disaster management, mitigation, and response, FEMA, was criticized for the failure. The body was mainly affected by politics and one of the measures put in place was to allow the organization to function independently.
In addition, the US government has increased its effort in addressing the issue of climate change. As earlier mentioned, the storm and its severity is a direct consequence of climate change. The president was quoted saying that he is a firm believer of climate change during his recent re-election speech. This statement had the implication that his government will be working towards addressing the issue of global warming and climate change. The main areas noted to need policy changes include the environment and infrastructure.

Risk management strategy

According to Williams et al. (1998), a risk management strategy includes strategic plans that enable any organisation to identify the tasks required to reach its goals, such as reducing risks. The US government, in response to the disaster, applied strategies of avoidance and controlling the risk. This is because the frequency of occurrence is high. It has also been projected that there will be severe hurricanes in the future during the hurricane season. This is because of climate change. The strategy of avoiding, includes putting effective drainage structures that will prevent flooding from the storm and working on the addressing the issue of climate change. Similarly, strategies for controlling storms emphasize on the handling the storm water to avoid flooding.


The paper has developed a detailed analysis of the recent hurricane sandy that hit mainland United States and the Caribbean states, and mid Atlantic. The analysis was based upon the risk management cycle and it can be concluded that despite the high cost estimate of the damage, the manner in which the US government handled the situation through its agencies was commendable. FEMA, the federal agency responsible for disaster management, effectively implemented decision regarding preparedness, response, and restoration. Lastly, the paper has also recommended strategy for effective management in the future. The primary areas of focus are on risk avoidance and control. This is because the frequency of occurrence is high and the scientists have also argued that future hurricanes will even be more severe than sandy.


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