By François Settembrino (President of FERMA 1984-1994)

All the world, in general, feels a shudder of fright when the earth trembles beneath their feet: to the extent that the world only shivers, it is not too severe. We are, however, seeing repeated exceptional seismic events.

For 2004, we number at 230,000 the deaths from the earthquake in Sumatra and the resulting tsunami that destroyed all in its path. The earthquake in Chile in 2010 was one of the most violent in the last 100 years and left 521 victims and two million damaged buildings. The total economic loss for the country was estimated at $30bn.

In 2011, it was the turn of Japan. Not just did the quake and tsunami cause 20,000 deaths, they also triggered the nuclear catastrophe whose effects will be felt for a long time. The most recent event, two great earthquakes off the coast of Sumatra on 11 April 2012, was felt in Singapore, Thailand and even India.

Aside from such earthquakes of exceptional power, the number of weaker seismic events has not ceased to grow. The last to date, the string of quakes which struck the North of Italy, had been foreseen for a long time by the Belgian scientist Haroun Tazieff. He considered that the north of Italy and part of the south of France were under threat of a very intense earthquake; let us hope that recent jolts experienced in Italy are not its forerunners.

The only response is anti-seismic building. But one is never sure of the result. At Kobe in 1985, the nature of the sub-soil rendered fragile even robust construction. It is important to reinforce existing structures, and some specialists have arrived at reasonable prices. But we must also draw lessons from the more recent events.

Lessons from recent events

Business operations were held up because parts remained undelivered. Sometimes this was because the location of the suppliers or sub-contractors was affected. Worse, sometimes, factories and depots remained intact in the middle of a sea of devastation with no roads, no energy supplies and workers whose homes had vanished and who found themselves without resources and some even without food.

Economic networks are deeply shaken, reconstruction may be problematic for lack of means and the life of the community is rendered impossible.

What lessons can we draw from such events? Simply, that we should return to the fundamental principles of responsible and effective risk management, specifically:

  • ·         Do not put all your eggs in one basket. To have two or three suppliers is better than relying on one.
  • ·         Examine the gaps in just-in-time production. When the system seizes up, the costs of substitution can adsorb, in a single swallow, all the savings that have been made.
  • ·         If a business uses multiple production sites, be aware of how to make a temporary change of location in terms of equipment and personnel.
  • ·         If you have only one site, do not count on help from competitors unless such assistance, possibly reciprocal, has been previously agreed by contract.
  • ·         The practice of zero-stock holding merits a serious re-examination by itself. Having a cushion of stock could be welcome.

All this corresponds to the single, imperative principle of management which should apply: favour the long term. It can never be protected by a short term vision, whatever the apparent financial advantages.