Complacency Before a Storm
The Risk Management and Decision Processes Center at the Wharton School of Business, University of Pennsylvania, is focused on the research and management of low-probability, high-consequence events that may be difficult to cover with insurance. After all, insurance is largely a function of probability that an event will occur vs. the cost of recovery from damages resulting from the event.
According to Erwann Michel-Kerjan, Ph.D., managing director of the Wharton Risk Management Center, the probability that, in the span of two hurricane seasons—little more than a year, seven hurricanes would make landfall in the Florida and Gulf Coast regions, is practically zero.
However, in 2004 and 2005, that is precisely what happened. Although the devastation from these hurricanes remains—particularly from hurricanes Katrina and Rita—the mild storm seasons in the last two years have lulled many back into complacency.
“Short-term memory is a challenge to planning for disasters and it’s hard to put a number to the probability that a [high-consequence] event will occur,” acknowledged Michel-Kerjan.
He suggested two aspects of a high-consequence event that need to be evaluated. First, retailers should contemplate courses of action should they become the victim of an event.
“The day after a disaster strikes is not the time to make first contacts with government agencies or local authorities,” Michel-Kerjan advised. Instead, the local decision-makers in a retail corporation should establish and maintain relationships with local agencies and law enforcement.
Secondly, retailers should evaluate how they might support disaster recovery, even if their operations may not be a direct victim.
“In the United States, 80% to 85% of the so-called critical services are provided by the private sector—and so, 80% to 85% of the expertise to manage critical services likely is in the private sector as well,” noted Michel-Kerjan. “The government may not have the distribution network or the expertise that you would find in large, corporate retail supply chains—such as Wal-Mart, Target or Home Depot.”
The questions Michel-Kerjan would pose to retail executives are these: “Following a disaster, what do you expect from others? And, what do you expect from yourself?”
Retailers that answer those questions with strategic planning, relationship building and concrete executive commitments will be better equipped to deal with potentially catastrophic events.
World-view risk management: In a global economy where retail enterprises envelope trading partners worldwide, adopting a world view is another critical component to managing high-consequence events.
“Interdependency is the key word to focus on,” advised Michel-Kerjan. “A major flood in China is going to impact American companies—it may not directly impact the company you are dealing with, but it could impact one of your partner’s suppliers and in turn impact your business.
“You can buy insurance if you think your company might be the victim of a disaster, but it’s hard to buy insurance against the possibility that one of your supplier’s suppliers might get into trouble.”
What Michel-Kerjan is seeing more frequently is scenario-planning among corporate executives. His advice is to identify and discuss “what if” scenarios, then start by building a strategic plan around a small and concrete aspect of one potential scenario.
Target.com offers installation services
MINNEAPOLIS Target.com customers will now have access to next-day installation services for their electronics through a new deal with Zip Express Installation.
Through Zip Express, Target.com customers will have the first installation option through the retail chain and can purchase installation packages alongside any major home electronic purchases made on Target.com, with next-day installation available anywhere in the United States and Canada. The selected service is rung up with the product at checkout and the customer can then call the toll free number or visit www.zipinstallation.com immediately after purchase to schedule a specific day and hour that is most convenient for installation.
“Many retailers today rely on the additional revenue gained from installation services,” said Chris Mauzy, president and ceo of Zip Express Installation. “Our services provide retail partners with the same benefits achieved from an in-house installation service, but without the overhead required to support the in-house program themselves.”
Wal-Mart asks shoppers to share BTS savings tips
BENTONVILLE, Ark. Wal-Mart has announced a new promotion in which it is asking consumers to share their money-saving tips for the back-to-school season. Visitors to the company’s MakeYourDollarStretch.com site can submit their stories on how they have learned to save on back-to-school spending for the chance to win a $600 Wal-Mart gift card.
The winners will be chosen by Ellie Kay, financial expert and Web site contributor and one finalist, receiving the most votes from visitors to the site, will take home an additional $600, Wal-Mart reported.
“Considering today’s inflation pressures and the rising need families have to better manage their spending, it is becoming more important than ever for parents to think about shopping smart and looking for resources to save money,” said “We all have ideas to share, and I expect this challenge will generate even more.”