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17 August, 2017
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A Tale of Two Risk Management Decisions

Two of us looked at an event and made similar estimates of the likelihood of it recurring. However, one of us chose to accept the risk; the other, chose to mitigate it. Which of us was right?

In 1998, an ice storm covered the east of North America. Unusual weather conditions, caused large amounts of freezing rain. The rain froze on power lines and trees, causing widespread power failures which lasted for several days.

Unless you live in a rural area, you are probably unaware of the full effects of a power failure. It's not the electricity itself. Lighting is the least of your worries.

With exception of stoves and fire places, most heating systems rely on electricity to circulate air or fluid. Without electricity, there is no heat even if you use gas or oil as your main source of heating. Within the space of a few hours an unheated house will drop to uncomfortable temperatures during the winter. Wait longer and pipes will freeze, and serious damage may occur.

In a rural house water doesn't come from a town supply: it comes from a well. Pumping water from a well requires electricity, so supplies of water become critical. You may have beer to drink in the fridge but your toilets will stop working after the first flush. Worse still, some houses may use a sewage pump to move sewage from a toilet up to a sceptic tank. Without electricity, such toilets stop working.

Many houses are built with basements below the natural water table. A sump pump is responsible for ensuring that the water table remains low. Without electricity the water table rises, and eventually floods the basement.

Dial into the internet to get email or find more information ? Rechargeable batteries don't last so long in low temperatures, and your laptop probably isn't rated for use below 5°C (23°F). Letting its temperature drop below -20°C (-4deg&F) may cause it permanent damage.

And did I mention the food in the freezer? If you are able to keep your house at a habitable temperature, then after a day or so this will start to spoil.

All in all, Ice Storms are not good things. Fortunately we are told that ice storms of this severity occur about once in a hundred years.

Because of disruption of transport and a major increase in demand, it wasn't until the ice storm had run its course before it was possible to buy a portable generator. It took even longer for generators suitable for cold winters to arrive.

A friend and I both “survived” the ice storm. After it had ended he bought a backup generator. I didn't. Which of us was right?

My reasoning at the time was simple: if an Ice Storm happens on average once in a hundred years then it's not worth spending a lot of money to prepare for the eventuality. There hasn't been another severe ice storm, so I made the correct decision. Right?

Jump forward several years, and a blackout strikes eastern North America. My friend can start his generator. I have no generator and no power. I realize now that I defined the risk too narrowly. Ice Storms of this severity may happen only once in a hundred years, but two or three hour power outages happen once a year, and major power outages every ten or so years. So I was underestimating the likelihood of an event which would need the generator by at least an order of magnitude.

Which of us made the right decision? I'm rather fond of the answer given by the Chinese prime minister Chou En-Lai when asked by Henry Kissinger whether the French revolution of 1789 benefited humanity. It is reported that he mulled the question over for a while and then answered “It's too early to tell”.

It's the same with the decisions of my friend and I. Although I will freely admit that I was out in my probability estimate by an order of magnitude because I defined the risk too narrowly, given that I have a backup heating system (fireplace), the high cost of installing a backup generator, and the possibility of an as-yet unknown risk emerging, it's still “Too early to tell”.

Michael Z. Bell
October, 2004

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