ASSIGNMENT 2 SOLUTION

Question 1 (20)
Define operational risk and explain each operational risk factor in detail. Analyse the
case study and use the operational risk factors to identify operational risk examples
for each factor and the mitigation measures that MS Estonia could have taken.
Answer
Operational risk is the risk of loss resulting from inadequate or failed internal
processes, people, systems, or external events. (1)

People risk includes fraud, breaches of employment law, unauthorised activity, loss of
lack of key personnel, inadequate training or inadequate supervision. (1)

Process risk includes payment or settlement failures, inadequate documentation, and

internal/external reporting failures. (1)

System risk includes failures during the development of systems or the inadequate
use of resources to develop systems. (1)

External events include external crime, natural disasters, political failures and regulatory
risk. (1)

Examples:
a. Process risk –
• the procedures to identify that there is a problem with the bow doors were
inadequate, leading to the disaster. It seems the responsible crew did not
perform a physical inspection of the bow doors.
• The bow visor was under-designed, as the ship's manufacturing and
approval processes did not consider the visor and its attachments as critical
items regarding ship safety.
• The bow visor and ramp had been torn off at points that would not trigger
an "open" or "unlatched" warning on the bridge, as is the case in regular
operation or failure of the latches.

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 • Mitigating measure: the crew should have done a physical inspection of
the bow doors. The bow visor should have been better designed, and the
crew, were slow in identifying the problem of inadequate parking of
vehicles, causing the ship to list.
b. People risk -
• The crew were slow in identifying the problem of inadequate parking of
vehicles, causing the ship to list
• The captain also failed to follow up and rectify the listing.
• There was also criticism regarding the passive attitude of the crew, who
failed to notice that water was entering the vehicle deck, which delayed the
alarm and was a shortcoming in guiding the bridge during the emergency.
• Mitigation measure: The crew should have been adequately trained on
emergency procedures and sounding the alarm. The loading crew should
have been effective in loading the vehicles correctly. (4)
c. External factor
• the weather was causing the waves to increase, making it unsafe to set
sail; the final disaster report indicated that the weather was rough with a
significant wave height of 4 to 6 meters (the norm is 3 to 4 meters).
• Mitigating measure: The Captain should monitor the forecasting by the
weather bureau and should not have set sail with 6-metre swells. (3)
d. System risk –
• the high-risk design of open-deck car ferries proved to be a problem in the
system design.
• In addition, the alarm system for the bow door was inadequate and did not
provide a warning to the crew that there was a problem.
• Following the flooding, the power failed altogether, inhibiting rescue efforts,
and this also caused a full-scale emergency that was only declared after
90 minutes.
• Mitigation measure: The open vehicle decks should have been designed
with more internal bulkheads as this was seen as a high risk for a ferry. (4)
(More factors can be derived from the case study).

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Question 2 (8)
Discuss in detail four reputational risks that resulted from the sinking of MS Estonia.
(any four):
1) The disaster was recorded as one of the worst maritime disasters of the 20th
century. The sinking of the MS Estonia remains the worst European peacetime
maritime disaster and the second-worst maritime disaster involving a
European-made boat since the Titanic.

2) The death of 852 of the 989 passengers and crew on board. Headline news
worldwide was the massive loss of life; only 137 people survived. Rescue
attempts were too late.

3) The third reputational risk is that due to the costs and complex logistics involved
with raising such a large vessel, MS Estonia has been declared a memorial
site. Further exploration of the wreck was prohibited (a treaty was declared in
1994). This resulted in a lot of rumours and conspiracy theories circulating.

4) Survivors of the disaster and the relatives of those who died have petitioned for
more than 20 years to re-open and expand the investigation into the disaster to
get more answers. In 2020, a Swedish TV Channel released a documentary
indicating a large hole in the hull due to a collision. The Estonia government
announced on 28 September 2020 that a new "technical investigation" will be
undertaken to investigate the disaster.

5) How the vessel crew handled the situation. For example, for failing to reduce
speed before investigating the noises emanating from the bow and being
unaware that the list was being caused by water entering the vehicle deck.
There were also general criticisms of the delays in sounding the alarm, the
passivity of the crew, and the lack of guidance from the bridge.

Question 3 (4)
Discuss two critical risk decisions made by the captain that potentially led to the
disaster and how these decisions could have been prevented.

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Answer
1) Decision by the captain to set sail notwithstanding the increase in the height of
the waves. This decision could have been stopped if the ship's company had
an operating procedure/policy that prevents a ship from leaving a harbour if the
waves are higher than 5 metres.
2) The captain failed to take corrective actions when the ship was listed to the
starboard side. This incident could also have been prevented if the captain had
a specific control list to pre-check that the ship was ready to sail.

Question 4 (10)
Risk-based decisions are dependent on accurate risk information. Key risk indicators
are an operational risk management methodology that generates risk information. The
height of the swells can be regarded as risk information that could have been used to
decide whether to leave the harbour or not. You must explain the concept of risk
indicators as an operational risk management methodology and provide a graph using
the information in table 1 to illustrate the height of the swells on 27/28 September
1994. Clearly indicate the threshold and state whether you agree with the captain’s
decision to sail at 19:15.

Answer
Key Risk Indicators provide vital information and serve as early warning to enable
management to manage the risks in such a way as to prevent negative influences on
the achievement of objectives.
• These indicators are leading or predictive and give current risk information.
• The indicators also allow for trends in risks and associated controls. These
trends can be used to predict events before they happen.
• It can also indicate a breach of specific pre-set thresholds, initiating corrective
and/or preventative control measures. (3)

Graph: Height of Swells (4)

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7
6
5
4
3
2
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0

Height of swells Lower Threshold Upper Threshold

• According to the risk information, the height of the swells started to increase at
17h00, breaching the lower threshold of 4 metres and breaching the upper
threshold of 5 metres at 17h00.
• The swells increased from 18h00 and it was unsafe for Estonia to leave the
harbour from 19h00.
• The captain should not have sailed at 19:15 as the swells were still at the height
of 6 metres. (3)

Question 5 (6)
People are frequently the cause of risks. This can be identified in the case study.
Identify four incidents where the crew can be held responsible for the ensuing disaster
and identify possible solutions to prevent similar disasters.

Answer
• The crew failed to ensure physically that the bow doors were locked.
• The crew did not ensure an even loading process.
• The crew failed to investigate the banging sounds and reduce the vessel's
speed.
• The crew initially failed to report a stress call.
• Similar disasters can be prevented by training the crew and establishing
standing operating procedures/policies.

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Question 6 (12)
The case study shows the importance of a risk management policy. According to
Blunden and Thirlwell, “policy and governance form the cornerstone of business
continuity management”. Discuss the policy statement concept and identify three focus
areas/procedures where a clear policy statement/operating procedure was lacking
during the MS Estonia disaster.

Answer
The policy statement is the benchmark against which all business continuity activity
should be continually monitored and checked. Since confusion is often the major
obstacle to an effective response to operational disruption, the policy statement should
set out the level of business continuity that must be achieved. (3)
As such, a policy statement should include:
• An operational framework for business continuity management that indicates
the following:
o Board-level support
o Roles and responsibilities of senior management and crisis
management teams
o Authorities that must act/react
o Business continuity steering committee to oversee the business
continuity procedures
• The business continuity principles and priorities (human welfare being a priority)
• Business-critical activities, the resource requirements and time-criticality
• The minimum standard for planning documentation, recovery times and service
disruption (5)

Focus areas to be addressed using a policy statement based on the case study:
• The crew's procedures to ensure an even distribution of the cargo must be
included in a clear policy statement and checklist.
• The crew must follow the procedures to ensure that the bow doors are securely
closed and locked.

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• The procedure to be followed by the responsible crew to report a stress signal
should indicate the responsible crew member and what to report, for example,
the ship's location.
• The disembarking procedure during an emergency must also be included in a
policy statement. It must be tested regularly or per trip to ensure that
passengers and crew are familiar with the procedures. (4)

TOTAL MARKS = 60