Page 27 - RMAI Bulletin July 2024

RMAI BULLETIN JULY 2024

Remedies: Causes

Following the Bhopal Gas Tragedy, several measures Several factors contributed to the failure of risk man-
were taken to improve risk management in India. The agement in the subprime mortgage crisis. One of the
government enacted the Environment Protection Act in main causes was the lack of proper risk assessment
1986, which established strict guidelines for industries and management processes. Banks and financial insti-
to follow to prevent environmental pollution. The Pub- tutions focused more on profits than risk management,
lic Liability Insurance Act was also passed, which made leading them to invest in high-risk mortgage-backed
it mandatory for industries to obtain insurance against securities that were ultimately unsustainable.
accidents that could cause damage to the public.
Another factor was the lack of transparency in the fi-
Lessons: nancial markets. Many investors and stakeholders

The Bhopal Gas Tragedy taught us several lessons were unaware of the risks involved in these securities,
about risk management. One of the most important leading to significant losses when the housing market
lessons is the need for companies to prioritize safety collapsed. The complexity of the financial instruments
over profits. Companies should conduct regular risk involved in the crisis also contributed to the failure of
assessments and invest in adequate safety measures risk management. Many of these instruments were
to prevent accidents from occurring. It is also essen- difficult to understand and assess, making it challeng-
tial to have emergency response plans in place to miti- ing to identify potential risks accurately.
gate the impact of accidents if they do occur.
To remedy these failures and prevent them from hap-
Another Risk Management Failure is Fukushima pening in the future, organizations need to take a pro-
Nuclear Disaster active approach to risk management. This includes:
The biggest risk management failure in history is the 1. Developing and implementing comprehensive risk
2011 Fukushima nuclear disaster in Japan. On March management frameworks and processes that are
11, 2011, a massive earthquake struck the north-east- integrated into the organization's overall strategy
ern coast of Japan, causing a 15-meter-high tsunami and operations.
that devastated the region. The tsunami also caused 2. Ensuring that all employees are aware of their role
a catastrophic failure at the Fukushima Daiichi nuclear in managing risk and have the necessary training
power plant, leading to a nuclear meltdown and the and resources to do so effectively.
release of radioactive materials into the environment. 3. Establishing clear lines of accountability and over-
sight at all levels of the organization.
Several factors contributed to the Fukushima disaster. 4. Encouraging a culture of transparency and open-
One of the primary causes was the failure of risk man- ness, where employees are encouraged to raise
agement by the plant's operator, the Tokyo Electric Power concerns and report risks.
Company (TEPCO). TEPCO had failed to adequately pre-
pare for a tsunami, despite warnings from experts and 5. Regularly reviewing and updating risk manage-
historical data that showed the region was susceptible to ment frameworks and processes to ensure they
such events. The company had also failed to install suffi- remain effective and relevant.
cient backup power sources and cooling systems that
could have prevented the nuclear meltdown. Lessons:
Effective risk management is essential for the long-
Another contributing factor was the regulatory failure term success and sustainability of organizations. By
by the Japanese government. The government had taking a proactive approach to risk management, or-
failed to enforce adequate safety standards and regu- ganizations can minimize the likelihood of costly fail-
lations on the nuclear industry. It had also failed to ures and protect their reputation and stakeholders.
hold TEPCO accountable for its lack of preparedness 1. Improve transparency: Financial institutions
and safety violations. should be required to provide clear and under-

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