INSTITUTE OF PUBLIC ADMINISTRATION

Risk Management and the

Space Shuttle Challenger
Disaster
Kelley Rickard

01-10-2015
 Kelley Rickard
Risk Management and the Space Shuttle Challenger Disaster

Contents
1. Introduction.............................................................................................................. 3
2. Managing Risk......................................................................................................... 3
3. The Space Shuttle Challenger Disaster ........................................................... 4
4. Strategic Risk .......................................................................................................... 4
4.1. Strategic Risks and Challenger ........................................................................................... 4

5. Governance Risk .................................................................................................... 5

5.1. Governance Risks and Challenger ...................................................................................... 6

6. Reputation Risk ...................................................................................................... 7

6.1. Reputation Risks and Challenger ........................................................................................ 7

7. Product Risk ............................................................................................................ 8

7.1. Product Risks and Challenger ............................................................................................. 8

8. Environmental Risk ............................................................................................... 9

8.1. Environmental Risks and Challenger ................................................................................. 9

9. Conclusion ............................................................................................................... 9
10. Bibliography ....................................................................................................... 11

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Risk Management and the Space Shuttle Challenger Disaster

Risk Management and the Space Shuttle Challenger Disaster

1. Introduction
Understanding the potential exposures faced by organisations is an essential part of
risk management in modern firms. Risk management involves forecasting and
evaluating risks while identifying processes and procedures which can minimise, or
even eliminate, their impact. This essay shall discuss managing risk and the ISO
standards which are available to organisations to enable them to identify potential
risks before they arise. It shall then explore more fully various aspects of risk
management including strategic risk, governance risk, reputation risk, product risk
and environmental risk. Each of these risks shall be analysed while considering the
Space Shuttle Challenger disaster and how the risks should have been better
managed to prevent the disaster occurring.

2. Managing Risk
Managing risk requires organisations to plan for and swiftly respond to risks, and
potential risks, which may arise in various areas. These risks can be classified into
categories, which include, but are not limited to, strategic risk, reputation risk,
product risk, governance risk and environmental risk. Managing risk is regarded as
one of the most important concerns which face organisations. In fact, risk
management is so prominent within organisations that it has an ISO regulation
dedicated solely to it. While other ISO standards, such as ISO 14971:2007, deal with
risk management in the context of particular manufacturing processes, ISO
31000:2009 is explicitly dedicated to risk management. Unlike many other ISO
standards, ISO 31000:2009 cannot be used for certification purposes; however it is
used by many organisations for guidance purposes for internal and external auditing
(ISO, 2009b). IEC 31010:2009 is again, not intended for the purposes of certification,
but supports ISO 31000:2009 offering guidance on selecting and applying systematic
techniques for risk assessment (ISO, 2009a). The creation of these international
standards offers an insight into the increasing significance of risk management within
organisations across the globe.

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Risk Management and the Space Shuttle Challenger Disaster

3. The Space Shuttle Challenger Disaster

On the 28th of January 1986, NASA launched the Space Shuttle Challenger. This
was NASA’s 25th mission in its STS programme (Forrest, 2005). At 16:30 UTC
Challenger lifted off with a crew of seven on-board. Seventy-three seconds after
take-off, the Space Shuttle’s external fuel tank collapsed, releasing all its liquid
hydrogen and liquid oxygen propellants. They ignited causing a fireball. This caused
a chain reaction which led to the death of all seven on-board (Than, 2014). While the
physical cause of the disaster was caused by “burnthrough of the solid rocket
booster”(Kramer and Jaksa, 1987), the Roger Commission also found that NASA
had failed to correctly identify

“flaws in management procedures and technical design that, if corrected, might

have prevented the Challenger tragedy.” (Vaughan, 1990)
The result of these failures not only led to the loss of seven lives, but also to a loss of
NASA’s reputational status. Throughout this paper we will look at the risks taken by
NASA, and subcontractor Thiokol, which led to these outcomes.

4. Strategic Risk
According to Bromiley, Rau and McShane the term “strategic risk management” first
appeared in 1985 (Bromiley et al., 2014). As such, this is a relatively new term in the
business industry. Strategic risks are those which either affect, or are created by
business strategy decisions. A Deloitte study states that ‘81% of surveyed
companies now explicitly [manage] strategic risk’. When one considers that 94% of
these respondents changed their approach to strategic risk management in the three
year period previous to 2013, it becomes clear that understanding strategic risk
management is vital for business survival (Deloitte, 2013). Every organisation, both
profit making and non-profit making, need to be aware of the inherent risks which
may arise due to the strategy decisions taken therein.

4.1. Strategic Risks and Challenger

While the Challenger tragedy was directly caused by cold temperatures which
interfered with the relatively small “O” ring, the decision to go ahead with the launch
was a strategic decision which led to the disaster. Thiokol engineers, the
manufacturers of the “O” ring, voiced their concerns to NASA regarding the potential
non-performance of the “O” ring due to abnormally low temperatures. While both

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NASA and Thiokol were aware that the seals on the SRB required improvement,
neither side were of the opinion that these upgrades were critical to the mission at
hand. Thiokol engineers were vocal in expressing their concerns that their own
testing of the “O” ring might be flawed due to the software being used on the
database shared by Thiokol and NASA.

NASA requested a definitive recommendation from Thiokol as to whether the launch

should go ahead. Thiokol responded that it should be postponed until outside air
temperatures reached 53°F. The weather forecast for Florida showed that this rise in
temperature would not happen for a few days. As the mission had already been
postponed previously, NASA was reluctant to postpone it again and pressured
Thiokol into supplying a different recommendation. Thiokol ended the conference call
to discuss the situation. During the discussion Thiokol management asked the chief
engineer “to take off his engineer cap and put on his management cap” suggesting
that he was not prioritising Thiokol’s organisational goals ahead of safety. The result
of the discussion led to Thiokol renewing the conference call with NASA and
recommending the launch go ahead (Forrest, 2005).

We can clearly see how both Thiokol and NASA made strategic decisions which they
believed would advance their own organisations. Both organisations failed to identify
the risks of these decisions which led to the loss of seven lives.

5. Governance Risk
Governance risks are those which look at the overall control mechanisms in place
and the overall management approaches which direct the organisation and control
the manner in which it is governed. In particular the actions, processes, structures,
traditions and information flows are analysed. Governance failures are slow-
developing risks which culminate in critical change and collapse. Though many may
claim that these risks were unforeseeable, they in fact develop slowly “emerging
from changes which take place over a long period of time” (Fisher, 2013). While the
organisation may believe that their system is stable, it is only through long-term
planning and an ability to rapidly adapt to changing circumstances, that an
organisation may avoid such risks emerging (Fisher, 2013).

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Risk Management and the Space Shuttle Challenger Disaster

5.1. Governance Risks and Challenger

After twenty-four previous missions, NASA was quite confident in their ability to
successfully launch Space Shuttles. However this confidence led to a false sense of
security. NASA was facing increasing demands from those in political power and
suffered from “internal strife and territorial battles” (Forrest, 2005).

“[T]he Reagan Administration removed the motivation of NASA employees to

manage and left them with the impression that decision making would be made
by directive from political sources.”(Forrest, 2005)
This led to complacency among NASA’s employees and led to safety concerns being
traded for time keeping to keep Challenger on schedule (Forrest, 2005).

The Roger Commission found that the explosion of the Challenger “was not just an
accident […] it was an act of organizational deviance” (Kramer and Jaksa, 1987).
The Commission highlighted that

“A well structured and managed system emphasizing safety would have

flagged the rising doubts about the Solid Rocket Booster joint seal. Had these
matters been clearly stated and emphasized in the flight readiness process […]
the launch of 51L (Challenger) might not have occurred when it did” (Kramer and
Jaksa, 1987)
This finding suggests a lack of governance in the area of safety within NASA. The
Commission also found that

“The waiving of launch constraints appears to have been at the expense of flight
safety. There was no system which made it imperative that launch constraints
and waivers of launch constraints be considered by all levels of management.”
(Kramer and Jaksa, 1987)
This finding suggests that the various levels of management did not believe that
flight safety was their responsibility. The commission highlights that there was no
system in place to ensure that the various levels of management must give heed to
the launch constraints. The failure of NASA to have this system in place allowed the
various levels of management to concentrate solely on launching on the date rather
than taking responsibility for the risks arising from the decision to do so. Failing to
ensure that management have agreed areas of responsibility is a serious
governance failure.

It was also stated that

“[t]he Commission is troubled by what appears to be a propensity of

management at Marshall (Space Flight Centre) to contain potentially serious
problems and to attempt to resolve them internally rather than communicate
them forward.”(Kramer and Jaksa, 1987)

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This suggests that NASA failed to ensure it had the correct processes in place to
ensure effective flows of information.

As we discussed earlier, it was during conference call between NASA and

subcontractor Thiokol, that the decision to launch was agreed. While there was a
group decision support system in place, the manner in which the conference call was
held led to a loss of communication between the two groups. It must be considered
that

1. The conference call consisted of an audio only speaker phone. This may have
led to a lack of facial recognition of the concerns of the Thiokol engineers by
NASA’s management team.
2. Thiokol left the discussion to reconsider their recommendation not to launch.
This meant that NASA’s management team were unaware that the change of
recommendation was not due to an increased perception of safety, but a
concern for Thiokol’s organisational goals.

These two factors alone highlight the lack of essential communication during this
decision making process. This lack of information flow was accepted as it was in the
nature of the business between the two organisations to meet in this manner. This
was a serious governance failure.

6. Reputation Risk
These risks involve the public reputation of the organisation and the effect which bad
publicity can have on the continuing success of the company. These risks can affect
the organisations share prices, as in the current case of Volkswagen, which has
seen a share price drop of 19pc due to its current reputational crisis (Evans-
Pritchard, 2015). Volkswagen has set aside €6.5bn to deal with the fallout after it
was caught manipulating its diesel car emission tests (Plummer, 2015). As many car
drivers purchased Volkswagen cars to reduce their emissions, and the associated
carbon taxes, they are not pleased to have been deceived by the company.

6.1. Reputation Risks and Challenger

Christa McAuliffe was aboard the Space Shuttle Challenger on that fateful day. She
was the first participant in the Teacher in Space Program. It was intended that she
would conduct live educational broadcasts which would be transmitted into

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classrooms across the United States and around the world. The impact of her death,
the death of a civilian, had an acute bearing on society’s attitude towards NASA and
the US Space programmes (Forrest, 2005) and plunged them into a huge crisis
(Hastings, 2003).

In the aftermath of the disaster Thiokol stock dropped 11.36pc in one day, which was
more than six standard deviations greater than the organisation’s average stock
return in the three months prior to the crash (Maloney and Mulherin, 1998). The
dramatic drop of Thiokol’s shares echoes the loss of credibility in the public eye of
not only Thiokol, but also NASA’s three other subcontractors. 1

Due to a lack of access to cable television at the time, the general public did not see
the tragedy unfold live on television. However, NASA had arranged for the full
mission to be broadcast via satellite into many schools (Oberg, 2011). The impact of
this upon the young viewers can only be imagined, and certainly may have tarnished
their view of NASA.

7. Product Risk
Product risks may arise from the quality of the product due to poor design, lack of
reliability, not being fit for purpose, or due to a failure to fulfil the consumer’s
expectations. In an effort to reduce product risks, many organisations achieve
certification using ISO standards. This enables the organisation to maintain a track
record of every product from initial design stages through to product realisations. ISO
9001:2008 is a general standard for implementing quality management systems
across any organisation, regardless of the products produced (NSAI, 2008).
However there are multiple other standards which relate to specific products.

7.1. Product Risks and Challenger

In the case of the Challenger disaster, Thiokol produced a product, namely the SRB
“O” ring which was of poor design, unreliable and certainly in this case, not fit for
purpose. It also failed to fulfil the consumer’s, ie NASA’s, expectations. The fault in
the seal design caused a general structural strain. Thiokol were aware of the fault
and were concerned about the effect of the cold temperatures on its performance

1
Due to the word count restriction, this essay shall only discuss Thiokol’s share price and not the other three
subcontractors, however the data may be found in Maloney and Mulherin’s paper (Maloney and Mulherin,
1998).

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during launch (Kramer and Jaksa, 1987). And as we discussed previously, both
Thiokol and NASA were aware that the current seals needed upgrading (Forrest,
2005). The Roger Commission observed that while NASA was previously aware of
the risks involved with the continued use of the “O” ring, they continued to fly and
defined away the escalating risks associated with the use of the product. The
Commission stated that the decision making was

“a kind of Russian roulette… (the shuttle flies with O-ring erosion) and nothing
happens; Then it is suggested, therefore, that the risk is no longer so high for the
next flights. We can lower our standards a little bit because we got away with it
last time... You got away
with it, but it shouldn't be done over and over again like that.”(Forrest, 2005)
We can see that while NASA and Thiokol were aware of the substandard product,
they continue to insist on its use rather than replacing it with a safer alternative.

8. Environmental Risk
Environmental risks incorporate the risks which confront living organisms and
environment. They may be transmitted via various means, including the air, water,
soil or other biological means and can have societal effects. However, there causes
can be extremely diverse. While many may result from natural processes, some are
created by humans (Whyte and Burton, 1980).

8.1. Environmental Risks and Challenger

The immediate environmental effect of the disaster was the loss of seven lives.
Contrary to popular belief, the crew cabin and the forward fuselage were not
destroyed in the initial fireball, instead they fell out of the sky and broke up when they
hit the water (Than, 2014). It is believed that the components were substantially
broken up on impact that the remains of the crew suffered deterioration due to the
feeding of fish and other sea life. It is also believed that the contents of the crew
cabin were found floating on the water (Isikoff, 1986). Regardless of NASA’s
thoroughness to clean up the site following the impact, it may have been quite
impossible to remove all trace of the disaster from the ocean floor.

9. Conclusion
We have analysed how understanding the potential exposures faced by
organisations is an essential part of risk management in modern firms. This essay

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Risk Management and the Space Shuttle Challenger Disaster

discussed managing risk and the ISO standards which are available to organisations
to enable them to identify potential risks before they arise. We then explored more
in-depth the various aspects of risk management including strategic risk, governance
risk, reputation risk, product risk and environmental risk. Each of these risks was
analysed while considering the Space Shuttle Challenger disaster and discussed
how the risks should have been better managed to prevent the disaster occurring.

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Risk Management and the Space Shuttle Challenger Disaster

10. Bibliography

BROMILEY, P., RAU, D. & MCSHANE, M. K. 2014. Can Strategic Risk Management
Contribute to Enterprise Risk Management? a Strategic Management
Perspective. Available at SSRN.

DELOITTE. 2013. Exploring Strategic Risk [Online]. Deloitte Touche Tohmatsu

Limited. Available:
http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Governance
-Risk-Compliance/dttl-grc-exploring-strategic-risk.pdf.

EVANS-PRITCHARD, A. 2015. 'Made in Germany' lies in the 'gutter' after

Volkswagen caught cheating [Online]. [Accessed 21-09-2015]

FISHER, L. 2013. Preparing for Future Catastrophes [Online]. Lausanne:

International Risk Governance Council. Available:
file:///C:/Users/User/Downloads/CN_Prep.-for-Future-
Catastrophes_final_11March13.pdf.

FORREST, J. 2005. The Space Shuttle Challenger Disaster: A failure in decision

support system and human factors management [Online]. Denver. Available:
http://dssresources.com/cases/spaceshuttlechallenger/ [Accessed 20-09-
2015]

HASTINGS, D. 2003. The Challenger Disaster. Available:

http://ocw.mit.edu/courses/engineering-systems-division/esd-10-introduction-
to-technology-and-policy-fall-2006/readings/challenger.pdf [Accessed 23-01-
2015].

ISIKOFF, M. 1986. Remains of Crew of Shuttle Found. The Washington Post.

ISO 2009a. IEC 31010:2009 Risk management - Risk assessment techniques.

Geneva: International Organization for Standardization.

ISO 2009b. ISO 31000 - Risk management. Geneva: International Organization for
Standardization.

KRAMER, R. C. & JAKSA, J. A. 1987. The Space Shuttle Disaster: Ethical Issues in
Organizational Decision-Making.

MALONEY, M. T. & MULHERIN, J. H. 1998. The Stock Price Reaction to the

Challenger Crash: Information Disclosure in an Efficient Market [Online].

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Social Science Research Network. Available: http://ssrn.com/abstract=141971

[Accessed 23-09-2015]

NSAI 2008. Quality Management Systems - Requirements. ISO 9001. International

Organisation for Standardization.

OBERG, J. 2011. 7 myths about the Challenger disaster [Online]. NBC News.
Available: http://www.nbcnews.com/id/11031097/ns/technology_and_science-
space/t/myths-about-challenger-shuttle-disaster/#.VgKoxt9Viko.

PLUMMER, R. 2015. Volkswagen board gathers for crisis meeting [Online]. BBC
News. [Accessed 23-09-2015]

THAN, K. 2014. 5 Myths of the Challenger Shuttle Disaster Debunked [Online].

Available: http://news.nationalgeographic.com/news/2011/01/pictures/110127-
challenger-disaster-space-shuttle-25th-anniversary-myths-science-nasa/
[Accessed 23-09-2015]

VAUGHAN, D. 1990. Autonomy, Interdependence, and Social Control: NASA and

the Space Shuttle Challenger. Administrative Science Quarterly, 35, 225-257.

WHYTE, A. V. & BURTON, I. 1980. Environmental Risk Assessment, Toronto, John

Wiley and Sons.

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