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May
09
2014
New perspectives on Risk management
Statistical or psychological
The Centre's one-day Risk management course addresses two important aspects of this vital strategic, organisational management function. The first component covers an introduction to conventional risk management processes including identification, assessment and mitigation. These are the foundations of risk management in many organisations and can be seen in risk registers and other sometimes colourful reporting tools.
Understanding these processes is essential for managers to actually manage - if you don't know what is happening or might happen, how can you possibly manage proactively? As Peter Drucker said "What gets measured gets managed" - if it is on the risk register, it gets attention. But therein lays the challenges of the conventional approach - is risk management merely a mathematical function of likelihood and impact, and what happens to things that are not on the risk register? These questions provide the starting point for the second component of the course which explores the connected ideas that (a) much of risk is psychological rather than statistical and (b) not all risks are the same.
Black Swan Theory
There has been quite a lot of media interest recently in a certain type of risk that has been labelled part of the Black Swan Theory developed by Nassim Nicholas Taleb in 2001. These are statistical outliers in terms of probability but have huge consequence in terms of impact - examples offered by Taleb include the rise of the internet, the First World War and the September 2001 attacks - apparently he also reckoned the dissolution of the Soviet Union was a black swan event, the implications of which are still playing out in Ukraine today.
It is also clear that over-reliance on conventional risk analyses does not guarantee success - we only have to look at the trouble banks have got themselves into since 2007 to understand the shortcomings of a predictive, operational approach. Whilst some of their problems can be attributed to poor compliance, others are a consequence of the failure to see risks hidden in plain sight! These are the risks we choose to take to get some benefit - think skydiving: to some unthinkable, to others the adrenalin rush is unbeatable - and how far we will go is part of our risk appetite. Leaders and managers make strategic choices and sometimes they will choose a particular course of action in the hope of achieving a competitive advantage, and in many organisations these types of decisions don't get the same level of risk scrutiny - there needs to be much more discussion.
Manage risk better
Risk is too often seen as an administrative chore in terms of both its reporting and its management but the evidence suggests this approach can expose organisations to even greater risks. The Centre's course will help build your understanding of risk; give you important skills to better manage risk; and develop your confidence to shift from reacting to risk.
Howard Exton-Smith is a specialist in business, programme and project management. He has particular expertise in strategy development and implementation, organisational effectiveness and marketing and he facilitates the Centre's Risk management training course.
