1. Looking only at long-term risk.
Mondshine said one of the most common sources of overconfidence is the tendency of risk assessments to focus on “out years”, like 2050, 2070 or 2100, due to an increased ability to capture those impacts via models. These long horizons may give comfort to companies that believe they can easily “trade around” these risks. However, changes in the probability distribution of impending risks are already occurring, as severe events anticipated to provide substantial and immediate stress are growing and can instantly alter the market value and insurability of assets before risk managers can reorder portfolios.
2. Failure to recognize the importance of outside-the-fence infrastructure.
Even when a facility provides resiliency measures like backup generation or fuel storage, it is still usually dependent on some public infrastructure, such as electric transmission and distribution lines, substations, water distribution lines, roads, bridges, and tunnels. In a severe hazard event, a facility may be functional, but without staff access to the facility—or fuel deliveries—operations are likely to halt.
3. Lack of relevant quality data.
Due to the difficulty of obtaining, understanding and using climate data, organizations often make do with limited data and methodologies, using forecasts from global, national or regional models. A bottom-up approach may be required to consider the facility’s topography, elevations, locations of mechanicals and other critical equipment as well as existing resiliency measures such as backup electric generation and fuel storage.