In Richard H. Thaler’s book, Misbehaving, he talks about fictional homo sapiens called "Econs" that perfectly follow economic theory.

His theory is that, compared to Econs, humans do a lot of misbehaving, meaning that economic models make a lot of bad predictions. Econs make perfect choices, optimising each decision; humans sometimes (often?) choose the easy way out. So here’s my question: are we imagining similar fictional humans when setting risk management policies?

Take the recent fuel crisis—an example that ended in Boris Johnson needing to send in the military to help. On Thursday 23 September 2021 BP warned that it had had to “temporarily” close a handful of petrol stations due to a shortage of lorry drivers.¹ By the weekend panic had struck and petrol stations were experiencing unprecedented demand for fuel, with some stations reporting fuel that usually lasted three or four days being sold in 24 hours.² According to The Guardian, the panic even resulted in five times as many people filling up with the wrong type of fuel.³ What wasn’t a crisis very quickly became one due to a perceived shortage, but also due to human response to scarcity.

The fuel crisis reinforced the importance of operational resilience. Operational resilience is an expansion on business continuity requirements, with a focus on preventing disruption to customers to the extent practicable. It’s about being able to continue providing vital services in the face of adversity, returning to normal operation as soon as possible, and learning from disruption and near misses. Both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have published their expectations for initial implementation of operational resilience regulations by 31 March 2022 in SS1/21⁴ and PS21/3,⁵ respectively. These center on identifying important business services to customers and ensuring these services can be delivered even during times of business interruption.

Operational resilience is an expansion on business continuity requirements, with a focus on preventing disruption to customers to the extent practicable.

Lessons from a fuel crisis

Consider the events over the last few weeks and the operational lessons that can be learnt:

• The importance of an end-to-end understanding of important business service supply chains: Under operational resilience guidance, firms are asked to identify their important business services where disruption could have an intolerable impact on consumers, the market or the firm itself. The fuel crisis has highlighted the importance of considering every link in this chain and the services supporting these links to ensure operational resilience. As the saying goes, you are only as strong as your weakest link, and in this case the presence of sufficient fuel supplies was useless if it could not get to where it was needed.
• The effect of human interactions on important business services: When identifying interactions with these important business services it’s worth considering how the human psyche reacts in times of crisis and any actions that could exacerbate a problem once it arises. Ultimately humans are guided by emotions and not logic,⁶ as evidenced by no amount of government reassurance being enough to stop people from panic-buying.
• The importance of early warning indicators and actionable responses: It will never be possible to foresee every iteration of risk that could impact your important business services; however, with some well- thought-out early warning indicators you may be able to limit the impact of an operational event as it crystallises. Consider for example a petrol station that had daily monitoring of the amount of fuel bought. It would have noticed a significant increase in the days after the BP announcement, signaling that something was not right. Had that petrol station immediately implemented a cap on fuel top-ups or a restriction on filling jerry cans, for example, it would have been able to serve its community for a longer period than other stations. Had all petrol stations implemented these actions immediately the crisis may not have reached the point it did.
• The importance of communication in times of crisis: While the benefit of good communication internally should be obvious, clear communication to external stakeholders is just as important to prevent further panic. I struggled, and failed, to curb my anger as I drove around wasting petrol to find petrol when my tank was running low, only to find empty petrol stations. I had to rely on information from other clueless people trying to be helpful, but who were ultimately wrong. I can imagine this was the experience of many individuals during that week, resulting in more petrol being used than necessary and making matters worse.

Learning from disruption is an important element of being operationally resilient. Luckily for most of us these big opportunities to learn may be few and far between. Therefore, it would be a mistake not to take our lessons from other sources. What the fuel crisis can teach us is that disruption could come from processes that are taken for granted and seem at first insignificant in the bigger picture. That it may not be possible to foresee every disruption to important business services, but monitoring key indicators might just avoid bigger problems and ensure customers can still be served. Additionally, when operational disruptions do occur, it is naïve to assume that people will respond unemotionally.

¹ Smith, O. (23 September 2021). BP closes some sites due to lorry driver shortage. BBC News. Retrieved 1 November 2021 from https://www.bbc.co.uk/news/business-58645712.

² BBC News (28 September 2021). Petrol supply: Bunny station manager urges halt to panic buying. Retrieved 1 November 2021 from https://www.bbc.co.uk/news/uk-england-nottinghamshire-58723600.

³ Topham, G. (27 September 2021). Petrol station chaos worsened by motorists filled up with wrong fuel. The Guardian. Retrieved 1 November 2021 from https://www.theguardian.com/business/2021/sep/27/petrol-station-chaos-worsened-by-motorists-filling-up-with-wrong-fuel.

⁴ Bank of England. Supervisory Statement (SS) 1/21: Operational resilience: Impact tolerances for important business services. Retrieved 1 November 2021 from https://www.bankofengland.co.uk/prudential-regulation/publication/2021/march/operational-resilience-impact-tolerances-for-important-business-services-ss.

⁵ FCA (29 March 2021). Policy Statement (PS) 21/3: Building operational resilience. Retrieved 1 November 2021 from https://www.fca.org.uk/publications/policy-statements/ps21-3-building-operational-resilience.

⁶ Camp, J. (11 June 2012). Decisions are largely emotional, not logical. Big Think. Retrieved 1 November 2021 from https://bigthink.com/personal-growth/decisions-are-emotional-not-logical-the-neuroscience-behind-decision-making/.