For decades, the burden of assessing potential

Risk and crisis organizational risks and exposures has been

shouldered by insurance specialists, either
management in internal or external to the company. Risk-
facilities: emerging handling devices, notably insurance and self-
insurance, have provided some degree of
paradigms in assessing comfort that an organization could withstand
critical incidents the financial impact of a disaster, although
such false confidence has caused multiple
problems for both multinational and small
Laurence Barton facilities alike[1].
and Donald Hardigree In recent years, the field of crisis manage-
ment has emerged in the corporate landscape;
companies such as British Petroleum, MCI,
First Interstate Bank, Perrier, and numerous
others, have created the function of director of
crisis management to perform the concurrent
tasks associated with both preincident risk
The authors
assessment and at-need operational crisis
Laurence Barton is Director of Issues Management for
direction. This synergy offers both challenges
Motorola, Inc., a global technology leader based in
and opportunities for facility managers, as
Schaumburg, Illinois, USA. He is the author of Crisis in
well as for the insurance community.
Organizations. The amalgam of disasters in this analysis
Donald Hardigree is Professor and Chair of the Institute includes workplace violence, product recall,
on Risk and Insurance at the University of Nevada, Las terrorism and environmental accidents as
Vegas, Nevada, USA, and a Consultant to several large listed below:
corporations. • fire;
• bomb, or bomb threat;
Abstract • flood;
Provides an analysis of why facility managers need to have • hurricane;
risk management in the business world today. Details how • hostage taking;
the risk manager’s duties differ from those of the crisis • robbery;
manager – while the risk manager assesses potential • chemical leak, or spill;
incidents, the crisis manager actually manages a crisis • sick building syndrome;
environment. Discusses stockholder business and legal • construction accident;
environments, then analyses the chemical waste manage- • wall collapse;
ment and crisis response requirements of different organi- • extended loss of utilities;
zations. • contractor/worker fatality;
• authority suspension of construction
licence;
• earthquake;
• sabotage.
The article will also focus on several models
now underway and offer analysis on how
organizations are attempting to identify the
best model for administering these functions.
Specifically, a case review method will identify
organizational approaches towards facility risk
and crisis management.

Why risk management?

A frequently cited objective of risk manage-
ment is the effective planning of resources

Facilities The views expressed are solely those of the authors

Volume 13 · Number 9/10 · August 1995 · pp. 11–14 and are not necessarily representative of the policy
© MCB University Press · ISSN 0263-2772 of their employers.
11
 Risk and crisis management in facilities Facilities
Laurence Barton and Donald Hardigree Volume 13 · Number 9/10 · August 1995 · 11–14

needed to recover financial balance and oper- difficult for many. For example, a labour
ating effectiveness after a facility loss[2]. relations manager under the traditional risk
Traditionally, risk managers implemented model assessed the qualitative and quantita-
sound, efficient fiscal management prior to tive impact of an employee strike, which is
the occurrence of a loss, such as through the traditionally a non-insurable exposure. Today,
use of property and casualty insurance, or as some firms move towards synergy of the
other loss-funding arrangements. An estimat- risk and crisis functions, this role is assumed
ed 21 per cent of all multinational firms also by the “crisis manager” function we have
engage outside experts to conduct a detailed witnessed at a number of firms in both the
risk assessment that evaluates and ranks USA and Europe. In Asia, even with the rapid
facility vulnerability to such issues as sick growth of its insurance industry, risk and
building syndrome, roof or wall collapse, crisis management is still an embryonic
contractor accident, toxic chemical spill, and concept, let alone a value-added business
numerous other calamities. strategy.
However, the above does little to assist the For the most part, the “traditional” risk
corporate risk manager in deciding what falls manager has focused on the handling of pure
within the scope and responsibility of his/her risks (those which may result in a loss only)
department. Without a more specific focus, and on the protection of physical assets. Such
general definitions result in considerable a “traditional” risk manager is concerned with
variation in the breadth of the practice of risks amenable to transfer to professional risk
corporate risk management from company to takers, primarily property and casualty insur-
company and country to country. Practition- ance companies. Additionally, one occupying
ers, as well as scholars, frequently differ sub- this traditional risk management role may
stantially in their concepts of the extent of the have some responsibility for safety and loss
risk management function. Many facility control, as well as for some non-transfer
managers in Asia, for instance, are also methods of risk treatment such as planned no
responsible for the risk management function, insurance, self-insurance and related proce-
whereas in Europe and the USA, these func- dures. To be effective, this traditional risk
tions are traditionally distinct. Even the inter- must have practical insight into construction,
nal reporting hierarchy may be different. retrofitting, utility, telecommunications,
As a result, the scope of the actual practice manufacturing and security activities in the
of risk management ranges widely from a facility.
reasonably narrow, or “traditional”, approach The “modern” view of risk management
of assessing exposures and securing suitable now evolving is even more encompassing. It
insurance policies, to a broader and more assumes a preventive role in which potential
inclusive “modern” view that often focuses crises are considered. Thus, in addition to
more on the control, i.e. loss prevention and having a fundamental knowledge of previous-
loss minimization, of potential losses, as well ly mentioned facility activities, the modern
as on more creative loss financing alternatives. risk manager must also be capable of address-
This broadened view of risk management is ing product recalls, industrial and environ-
characterized by an appreciation of the need mental accidents, acts of terrorism, product
for contingency and business resumption tampering and numerous others – literally any
plans, one of the principal attributes of crisis negative event that could tarnish the reputa-
management. tion, earnings potential or survivability of the
organization[3]. In addition to the duties of
the “traditional” risk manager, the “modern”
Traditional versus modern models
risk manager may even become involved with
The “traditional” view of risk management the analysis of speculative business risks in
seems to be closely linked to the historical new or emerging markets, sometimes with
evolution from that of an insurance manager, potential joint partners.
dealing only with the administration of the This view suggests that the risk manager’s
firm’s insurance programme, towards becom- sphere of responsibility appropriately extends
ing a risk manager, who considers non-insur- to include the administration of quality
able exposures as well as non-insurance control (to prevent product tampering),
financing techniques. Because facility man- business forecasting (to prevent loss from an
agers are often less exposed to fiscal policy act of war or terrorism), and myriad other
issues, the integration of skills has been areas where unforeseen risk must be
12
 Risk and crisis management in facilities Facilities
Laurence Barton and Donald Hardigree Volume 13 · Number 9/10 · August 1995 · 11–14

considered. Within such a modern approach, • Transfer the loss exposure(s).

the scope of the risk management department • Utilize loss control techniques to minimize
is defined as including responsibility for all the frequency of losses (loss prevention) or
circumstances which would cause loss to the to minimize the severity of losses (loss
firm, affecting human and physical assets, that reduction).
can be clearly identified and treated by specif-
ic types of loss control and financial planning.
Facility managers in particular can make Risk management policy
profound contributions to their organization To guide the risk manager, an internal risk
when they assume these additional responsi- management policy statement is often formal-
bilities. ized. Risk management policy is formed by
the interaction of the corporate risk manager
A new paradigm and the senior management of the firm so as
to be consistent with the overall risk profile of
Regardless of the nature of the specific risk the management team. A statement of risk
management function within the firm – tradi- management policy assists the risk manager in
tional and limited in scope, or a modern
making decisions regarding the methods of
approach that embraces risk and crisis man-
treatment of loss exposures, levels of retention
agement – the risk manager must be con-
in the use of insurance policies, etc. Equally
cerned with any circumstance which gener-
important as a management tool is a clear
ates potential losses to the facility. An activity
itemization of responsibilities for the risk
that creates a facility exposure must be
manager, several of which are:
addressed by the risk manager, even if the
• property and general liability insurance;
activity itself is outside his/her authority.
• worker’s compensation;
The loss exposure identification function is
considered to be the fundamental duty of the • loss control activities;
risk manager. Without the recognition of • claims administration;
exposures, or potential sources of loss, no • employee benefits;
evaluation of exposure or provisions for han- • risk cost accounting;
dling can follow. • risk function administration (contact
The interrelationship of functions identi- review, issuance of certificates, etc.).
fied in Figure 1 amplifies this point. It is interesting to note that risk managers
Clearly, the risk-handling technique(s) have a burden to assess not only potential
referred to in Figure 1 are selected from physical or product defects that could occur,
among the following alternatives:
but also the emerging and complicated arena
• Avoid the loss exposure(s).
of employee benefits. This role within risk
• Assume or retain the financial
management is growing in enormity; studies
consequences of loss.
note that over half of all risk/insurance man-
agers now bear responsibility for employee
benefits administration. This poses a massive
new curve for managers, who traditionally
Figure 1 Risk and crisis management functions in major have had little formal training in this risk
facilities aspect of operations.
The list of applicable areas within the risk
management function shrinks and broadens
Risk Facility Crisis
throughout the business world. Organization
manager manager manager size and structure, type of industry, manage-
ment style, level of centralization and many
other factors affect the scope of risk manage-
Evaluates possibility Determines facility Leads management ment within the organization. By acting as an
and probability; vulnerabilities and team on incident
assesses exposures; launches proactive prevention and adviser to senior management in the drafting of
assumes or transfers programme in risk response, business corporate risk policy, the facility manager may
risk awareness, safety, resumption and
hazmat and communication to influence the scope of activity around his or her
evacuation policies strategic publics
among others skill base. We believe that, while understand-
able, this approach creates such widespread
Assessment Awareness Policy
inconsistency that facility managers must begin
13
 Risk and crisis management in facilities Facilities
Laurence Barton and Donald Hardigree Volume 13 · Number 9/10 · August 1995 · 11–14

Table I A corporate training model in US chemical waste management and crisis response

US Physical and Personal Safe use of

regulatory Hazard health Safe work protective emergency controls Emergency
programme recognition hazards practices equipment and equipment procedures

OSHA Hazard
Communication Standard X X X X X
OSHA Hazardous Waste
Operations and Emergency
Response Standard X X X X
OSHA Process Safety
Management of Highly
Hazardous Chemicals X X X X X
EPA Resource Conservation
and Recovery Act X X X X X
EPA Spill Prevention and
Countermeasures Plan X X X X
DOT Hazardous Materials
Transportation Act X X X X
Key :
OSHA = Occupational Safety and Health Administration
EPA = Environmental Protection Agency
DOT = Department of Transportation
Note: Several jurisdictions in Japan, the UK and several of the American states are currently debating the need for security,
notably bomb/weapons/metal detector requirements, in manufacturing and office environments. This movement has been
fuelled by recent poison gas incidents in Japanese subways, five bombings by suspected IRA perpetrators at London targets,
and terrorist attacks at the New York World Trade Center and Oklahoma City Federal Buildings, to name but a few.
Source: Oscar Lutz

to seek consensus on what risk dimensions they References

can and should claim ownership for and which
1 Barton, L. and Hardigree, D., “Crisis and risk manage-
ones are best delegated to others.
ment: a new paradigm”, paper presented at 3rd
At a minimum, the objective of satisfying Annual New Avenues in Risk and Crisis Management
externally imposed obligations has been Conference, University of Nevada at Las Vegas, Las
thrust into the risk management arena more Vegas, NV, August 1994.
so than in the past. This means that risk man- 2 Greene, M.R. and Serbein, O.N., Risk Management:
Text and Cases, 2nd ed., Reston Publishing, Reston,
agers must engage in an analysis of the busi-
VA, 1983.
ness and legal environments to determine new
3 Barton, L., Crisis in Organizations: Managing and
requirements for the firm. Communicating in the Heat of Chaos, South-Western
In this regard, the facility manager is now Publishing, Cincinnati, OH, 1993.
often required, at many international organi-
zations, to intersect with hazardous material Further reading
and safety colleagues to design and imple- Head, G.L. and Horn, S. II, Essentials of Risk Management,
ment training awareness in crisis response. To 2nd ed., Insurance Institute of America, Malvern,
demonstrate how complex this additional PA, 1991.
dimension of facility risk management has Leverett, E.J., Risk Management, Bulldog Publishing,
become in the USA, Table I, designed with Atlanta, GA, 1988.
the assistance of consultant Oscar Lutz, offers Mehr, R.I. and Hedges, B.A., Risk Management Concepts
and Applications, Irwin, Homewood, IL, 1974.
some insight on this issue. Most large manu-
Williams, C.A. Jr , Head, G.L., Horn, R.C. and Glendenning,
facturing facilities in the USA and Canada
G.W., Principles of Risk Management and Insurance,
(with differing sponsoring agencies) are Vol. 1, 2nd ed., American Institute for Property and
required to follow this agenda. Liability Underwriters, Malvern, PA, 1981.

Application question
(1) Many organizations are strong on the risk assessment side of management, but weaker in
planning for how to manage an incident. How can your management team synthesize these
two avenues?
14