moneyFYI
Financial Freedom Is Merely Organized Common Sense
Decision Making Under Conflicted Rules
What happens when you combine unreasonable expectations, inadequate regulation either internally or externally, conflicted objectives, mistakes and bad luck? Nothing good you can be sure.
Consider the train disaster in Lac Magentic Quebec last July. It is perfect example of the intersection of all the conditions above. Managers need to be careful to avoid assigning tasks or delegating outcomes with a “Make it so!” attitude. The doers may not have a big enough view of the overall status to make good decisions when the pieces conflict and the result can be disastrous.
Regulation was inadequate:
- Tank cars were unable to sustain the damage
- The operator could not operate longer than a specified time and without specified rest
- Brakes must be set manually on one of four cars while parked
- Regulations permit the operation of a train by one person.
- A pipeline to support this traffic has not been approved
Regulation 2, 3, and 4 cannot all happen at the same time.
There were conflicting conditions
- The customer expected to receive the oil at a particular place, time and for a set price.
- The customer must use a train as there is no pipeline capacity.
- The carrier was cost conscious and chose the one operator solution
- The train may have required maintenance
- There may have been a late delivery penalty.
The carrier accepted or perhaps sought the contract for delivery without considering that the price was inadequate to cover all the costs they would incur. The sales department is not without blame for the result. No one should accept a sale that cannot cover costs. Do the sales people know and understand the complete costs?
Mistakes
- The engineer made a decision to set some of the brakes manually and use the air brake system as the primary force.
- The fire department did not start another engine to replace the one that was damaged.
- The train parked on the main line because the siding was being used for storage
- The train carrier decided on one person train operation as a cost saving advantage without considering that it was not possible to meet all the conditions required, all the time.
The train’s engineer could not meet all the conditions required and selected a compromise solution to his problem. The fire department did not know that the engine was running for a reason. The engineer thought a few manual brakes were enough.
The result of the convergence. Hundreds of millions dollars of damage, the death of 47 persons and the displacement of hundreds more.
This is a cost/benefit problem. To make it work there needs to be consideration of the fact that there is no perfect way to get what you want. Everything is connected, sometimes in obscure ways. As a fail-safe you need to know what actions will be taken when conflicts arise. You do that by setting priorities and by training people.
- How much does a second person on the train cost?
- How much does more rigorous engine maintenance cost?
- How much does it cost to store cars away from the siding in question?
- What is the probability of an accident happening?
- What is the cost of the accident if it occurs?
- How much would insurance premiums go up after any accident.
- How big a margin for error do you want?
- Could the business survive even one accident?
In Lac Megantic the costs will likely exceed $1 billion and the carrier is now in bankruptcy. The probability of it happening was small but well above zero. Did anyone compare the cost benefit of expense saving actions compared to the probabilistic accident? Probably not. Did anyone set prices based on the total cost of providing the service? Probably not. Would the engineer be in trouble if he had taken an extra hour or two to set the brakes and left later in the next morning. Probably.
Should someone have a taken a global look? Probably yes, but hindsight is razor sharp.
If another disaster should occur could the operator argue that they did not know enough to make a reasonable analysis? I don’t think so.
In business and in life, know what the global picture looks like and refuse to do things that rely on good luck to make the outcomes acceptable.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
don@moneyfyi.com | Twitter @DonShaughnessy | Follow by email at moneyFYI
moneyFYI 
It’s true. There ARE no accidents. However the fact that this knowledge has not reduced the number and frequency of accidents, remains an indictment of human nature, as well as a validation of your theorum.
You could easily do a parallel commentary on the life insurance agency career system–it’s no accident that increasing millions fewer Canadians have a personal life insurance agent than, say, 40 years ago. You could also apply this analysis to the economic woes of Europe and the United States. This kind of mayhem requires slavish dedication driven by all the wrong motives, to achieve and maintain.
When humans are involved, perhaps the only “accident” is when things go right.