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Manage Tomorrow's Surprises Today

Steven Minsky

ERM Report: WV Water Contamination, a Regulatory Lesson?

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[Editor's Note: Organizations have become myopic with GRC solutions, and they can no longer see the forest through the trees. Our new series, brought to you by the LogicManager Analyst Team, will keep you up to date with real world examples of risk management failures, and how ERM could have prevented them.]

Manufacturing ERM

Over 300,000 West Virginians are still waiting to use their tap water for cooking, cleaning, and even bathing after the discovery that a chemical used in coal processing was allowed to leak into the Elk River. Freedom Industries, the company operating the plant, and WV authorities have estimated that approximately 7,500 gallons of chemical escaped from the 40,000 gallon tank, and the early indications are that despite a lack of controls to notify the company of a problem, the company is not at fault from a regulatory perspective.

Despite the lack of regulatory grounds for federal action, the incident will carry an expensive price tag for Freedom Industries. Less than 24 hours after a chemical leak had been discovered, suits had already been filed by local organizations seeking to recover lost profits and other damages due to the effects of the leak. The class action suits, which include compensatory damages, interest, statutory damages, punitive damages, injunctive relief, and attorney fees, among other costs, will end up tallying millions of dollars, and does not include the inevitable expenditures on remediation as Freedom works to clean up the mess.[1]

Fortunately, the crisis is not a serious threat to residents' health, but it is an example of the importance of implementing Enterprise Risk Management, even in instances where such programs are not explicitly required by regulation.

With an ERM program in place, risks can be evaluated outside the confines of regulatory impact. The chances are high that the maintenance or facilities staff within the plant was aware of the risk of a chemical spill, but lacked the risk management acumen, access and methodology to escalate their insight to the level where resources could be allocated.

Enterprise Risk Management Solutions eliminate this bottleneck by revealing the needle in the haystack, and makes the cost of not addressing the risk clear and actionable. An ERM software would have engaged the front line managers in a workflow to strengthen controls. Even the act of implementing a solution would have provided immediate relief, as the presence of an adequate ERM program would have demonstrated that the organization was actively working to prevent spills, softening the eventual impact of suit damages.

Organizations cannot afford to wait for regulatory mandates to begin formalizing an Enterprise Risk Management program. The LogicManager Analyst Team maintains that tomorrow's surprises are manageable, and the steps to manage them are known and well documented.

If you already know your ERM program needs the transparency ERM Software can provide, download our ERM Software RFP Template for a business requirements document to help you chose the right solution.

[1] Water contamination suits already being filed. Dickerson, Chris. The West Virginia Record: West Virginia's Legal Journal. January 15, 2014.

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In this blog, risk expert Steven Minsky highlights the differences between traditional risk management and true enterprise risk management, which is about helping things happen rather than preventing them from happening. Manage Tomorrow's Surprises Today is designed to help you think about risk in new ways and learn how to benefit practically from this rapidly evolving field.

Steven Minsky

Steven is the CEO of LogicManager, Inc. the leading provider of ERM software solutions. Steven is the architect of the RIMS Risk Maturity Model for ERM, author of the RIMS State of ERM Report among many other papers, and a RIMS Fellow (RF) instructor on ERM. Steven has conducted ERM and RIMS Risk Maturity Model training for hundreds of organizations around the globe. Steven is a patent author of risk and process management technology and holds MBA and MA degrees from the University of Pennsylvania’s Wharton School of Business and The Joseph H. Lauder Institute of International Management. You can reach Steven at steven.minsky@logicmanager.com.

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