To say that we entered the Bracken Bower prize on a whim wouldn’t be quite fair. The original details about the contest came from Ken McGuffin, the Media Relations Manager for the Rotman School of Management, who helped us through the process of writing an Op Ed for the Guardian on the continued risks of deepwater drilling. Ken recommended that we look into the prize. We agreed that it seemed interesting, but we started out by putting it on the back burner, where it sat for several months. Continue reading “The Bracken Bower Prize”
Managing the Risk of Catastrophic Failure in the Twenty-First Century
“This was not our drilling rig, it was not our equipment, it was not our people, our systems or our processes.”
– BP CEO Tony Hayward, 13 days after the explosion aboard Deepwater Horizon
Despite Mr. Hayward’s assertion, it was ultimately BP’s failure to manage the myriadrisks of deepwater drilling that caused a tragic loss of life, widespread environmental damage, and a bill of upwards of fifty billion dollars. The failure of Deepwater Horizon, and BP’s inability to contain the subsequent oil leak, was not simply a failure—it was a system meltdown. Continue reading “Rethinking the Unthinkable”
Regulations, Enforcement Create Risk in the Complex and Rigid Markets
The Flash Crash should have been the impetus for serious reconsideration of the structure of our national markets. But in the five years since its occurrence, assumptions have not been re-examined. The market’s complex and interconnected structure, which regulations mandate, increases the likelihood of destabilizing failures. Despite extensive study, and a recent indictment, regulators have not fully grasped the lessons of the Crash: a simpler set of rules would result in a market more resistant to explosions of volatility.
Continue reading “Chaos via Control”
Will Managers Ever Learn?
From BP’s Deepwater Horizon disaster, to deadly component failures at Toyota and GM, to technological meltdowns at major stock market participants likeKnight Capital (now KCG Holdings), Goldman Sachs, and NASDAQ, catastrophic failures have devastating effects on the environment, businesses, and customers. And the potential for failures of this kind is growing as both the complexity of our systems and the probability of extreme “trigger” events increase.
Continue reading “Courting Catastrophic Failure”
Lessons for the SEC from the Airline Industry
by Chris Clearfield, András Tilcsik, and Benjamin Berman
A small error on August 1, 2012 nearly bankrupted the Knight Capital Group. Code from a discontinued software component was accidentally reused after nine years, and in just 45 minutes Knight’s automated order router had flooded the market with millions of unintended orders. Knight lost $460 million when it sold back the inadvertently traded stocks—a staggering $10 million dollars per minute.
Continue reading “Preventing Crashes”