Friday, April 16, 2010

Icelandic Volcanoes: Networks, Risk Management & Innovation

Network resiliencyrisk management and innovation are frequent topics of discussion when it comes to the economic system meltdown.  Any system, however, can be looked at through the same high-level lenses.  This holds true for the air transportation system which has seen airlines, travelers and businesses impacted by a giant cloud of silica spewed out from an Icelandic volcano.  With the air transportation system shut down, there are lessons to be learned in how businesses/governments think about networks and then how that impacts the very real decisions made around risk management and innovation.  

(1) Networks are resilient only to the extent their underlying operating systems are stable.  One hears a lot about how networks are resilient, that specific nodes can be taken offline without impacting the functioning of the overall network.  However, when the operating principle of the network is disrupted, the network isn't resilient and ceases to function.  In this case, the operating principle (ability to route around what are usually short term, localized atmospheric conditions) of the air transportation network was disrupted effectively shutting it down. This demonstrates that focus needs to not only be on protecting network nodes, but also the basic underlying operating systems.  This has often received less focus than protecting individual nodes  when ensuring the continuity of networks we depend on ... international shipping system, electrical grid, etc.  It gets to the heart of risk management.  

(2) Risk Management.  Formalized risk management systems are all the rage in a lot of companies, yet in many cases they become sterile exercises where everything is included and nothing is effectively mitigated.  How many airline companies had: "Large scale atmospheric disturbances, resulting from volcanic ash" in their risk management systems?  Likely very few.  

(3) Innovation to manage risk or make money off of it.  Some reports say that there were past volcanic eruptions in Iceland that today could cause an ash cloud that persists for months.  Somewhere, there is a company or inventor thinking about a jet engine filter to allow planes to fly safely through volcanic silica.  Perhaps, this was even proposed in the past, but was never acted on because a volcano was considered a "black swan" or the cost was too high.  In any case, what may not have been a priority in the past, likely will be today as the airlines lose market cap and businesses of every type suffer losses ranging from productivity to product spoilage.  

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