Posted by Latha Ramchand on April 26, 2011
The disaster at Fukushima will stay with us for a long time to come. On April 11, the International Atomic Energy Agency revised its preliminary rating of the disaster raising it to the level of Chernobyl, which meant a rating of 7 on the International Nuclear Event Scale (INES). The disaster has increased public concerns around nuclear energy all over the world. Nuclear power provides 20% of electricity in the U.S. Driven by economic growth in the developing world, demand for energy is expected to increase rapidly in the coming decade.
Even as we phase out coal-fired plants and alternative energy is still not economically viable, how do we inform a rational strategy on nuclear power? The Diablo Canyon nuclear plant in California is built to withstand an earthquake that measures 7.5 on the Richter scale. Are we prepared to live with this level of safety given the events in Fukushima? At the same time, it is worth mentioning that the reaction to the Three Mile Island disaster led the U.S. on the path to coal plants, which in retrospect turned out to be an error.
Nathan Myhrvold is founder of Intellectual Ventures, which is building a nuclear reactor that is safer and cheaper that runs on depleted uranium and can go years between refueling. This reactor is years in the making. What do we do in the interim? Nicholas Taleb, who wrote the Black Swan, writes that our current risk measures do not reflect the cost of small probability albeit costly disasters. How do we build these costs into our decision making and at the same time build balance in our way of thinking and reacting? Your turn.
Posted by Latha Ramchand on April 20, 2011
On Monday, the S&P lowered its outlook on the debt of the United States government from ‘stable’ to negative. While the ratings stayed at AAA, the outlook is cause for concern. In 2010, gross debt and the budget deficit in the United States were 91.6% and 10.6% of GDP respectively. The numbers imply that the average person in the U.S. is carrying a debt load of $43,152.80. To put things in context, the average per capita income in the U.S. is $33,070 and the median is $46,000.
The recent downgrade in outlook speaks to the fact that the magnitude of our debt relative to income is more akin to the distressed nations in Europe (gross debt to GDP is 83.3% in Portugal for the same period). More concerning and the reason for the recent downgrade is that the dialogue in Washington does not bode well for the future. There does not seem to be a roadmap that we can use to navigate ourselves out of this situation. Congress it seems, does not have its act together and our elected officials are unable to speak the same language.
Business Communications 101 tells us that when firms face a crisis the first thing to do is recognize the situation and communicate a strategy and action plan to resolve the situation. Katrina and Deepwater will remain in the public mind for the scale of destruction caused but also for the poor handling of the situations by leaders in charge. The problems were equally about not communicating the solutions being planned as much as they were about not having the right solutions. On the contrary, the events of 9/11 show us that during a crisis, effective leadership demands:
- An understanding of the magnitude of the problem
- On the ground presence
- Willingness to listen
- Willingness to work together
- Communicating the plan of action to all stakeholders clearly and often
Your thoughts about how we can use these lessons to get a handle on our national debt ?
Posted by Latha Ramchand on April 11, 2011
On Saturday, April 9, 2011, the Bauer College hosted the CME Group Commodity Trading Challenge – Open Outcry Competition. The event brings student teams from colleges around the country to compete in an open outcry competition buying and selling commodities.
A panel discussion of traders and energy experts kicked off the event. The discussion was interesting and generated questions regarding the lessons to be learnt from the trading floor. From understanding the economic impact of news events to the ability to communicate the right message, the panel highlighted the skills required of energy traders. One discussant summarized the most critical skill learnt in the process viz. decision making under chaos. With perfect hindsight and with the luxury of time, decision making becomes an academic exercise. The ability to sift information from noise, to make quick decisions in an environment when information rapidly changes and to communicate and explain these decisions, even if hindsight proves them wrong – really these are traits needed for success in any area, not just trading. Whether it is energy traders on the pit of the exchange or army commanders on the field in a war zone, or executives dealing with crises ranging from Deepwater to the contamination after the nuclear fallout resulting from a tsunami, these skills are valuable. The more we can incorporate these into a curriculum both inside and outside the classroom, the better prepared our graduates will be.
Think of this as you go through your daily routine – do you, at the end of the day think back on your actions and take stock – how often do you regret your decisions and if so, were they avoidable? Is there a pattern and what are the lessons learnt? Much learning can come out of this exercise.