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Monday, 1 May 2017

Urbanisation vs Risk Management

Risk management tells us not to put all our eggs in one basket. Nature and life have their own way of risk management: compartmentalisation. A living organism may lose a part of its whole but can still survive without it. A company may create business units, divisions or subsidiaries. Risk management and compartmentalisation are key organisational principles.

Urbanisation created megacities of 10+ million people (e.g., Tokyo 39, Jakarta 32, Seoul 26, Karachi 24, NYC 24, Beijing 22). Urbanisation is probably rooted in the human belief that More = Better. Nevertheless, the air quality in Beijing and London is already shortening the average life of its citizens. Urbanisation is an exception to compartmentalisation and risk management. Why does urbanisation contradict key organisational principles?

Urbanisation often took - and still takes - place near rivers, seas and oceans to facilitate trade, transportation, waste disposal and water supply. Other elements were added in time: protection (e.g., city walls, soldiers), specialists (e.g., hospital). Urbanisation creates a marketplace where demand meets supply (eg, capital, knowledge, labour).

Human history shows several ancient cities that were abandoned by its citizens (eg, Cahokia Mounds). Often it's a mystery what happened and why these people left. Human diseases may have played a role as its impact in cities is much higher than in the countryside. Essentially, cities contradict risk management when it comes to viral diseases (eg, bird fluEbola).

The Technological Revolution of 1800-2100 has also had its impact on city planning. The technical building constraints have changed as a result of using bricks, concrete and steel rather than wood. This is probably a main reason why city populations were able to increase dramatically. For centuries, (advances in) technology won from key risk management principles.

Risk management is about 2 main event parameters: probability and impact. There are also 2 main concerns: 1) often it's based on a normal distribution, 2) often tail risk and/or black swan events are neglected. Tail risk is the risk (or probability) of rare events. Black swans are an example of tail risk and cause an "extreme impact of certain kinds of rare and unpredictable events".

On 20 April 2017, Beijing announced plans to combat what it calls “urban diseases” by capping its population and shrinking its footprint. The Chinese capital will cap its population at 23m “long-term residents” by 2020 “and keep it at that level for the long term” (FT). Beijing is the 1st city to acknowledge the risks of urbanisation and megacities.

Urbanisation creates new risks in and of itself: air pollution, crime, pandemicssinking landwater supply, and even mental health issues. The Chinese are the first to acknowledge that risk management of urbanisation is - and its risk models are - flawed, and especially regarding urban concentration risk.

Nine Million Bicycles (2005) by Katie Melua - artist, lyrics, video, Wiki-1, Wiki-2

There are nine million bicycles in Beijing 
That's a fact, 
It's a thing we can't deny