by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
I was doing a bit of studying lately on Chaos, which is a field of science that has interested me since I was in high school. As a field of study it is really quite neat, but not as practical as complexity. The issue is that it is harder to get academic papers published in complexity and thus the scientific establishment pushes forward with chaos.
One of the things I learned earlier this week in my readings was that fighter jets are designed to be chaotic. That is they are specifically designed to be unstable. While this might be an undesirable trait in a commercial airliner, it is very attractive for fighter planes. The instability – chaos – allows the plane to be much more maneuverable in crisis situations. The instability actually serves a useful and valuable purpose.
This led me to consider the use of risk systems by most firms. The goal in risk management – to my chagrin – has been to create ever more inflexible risk systems and frameworks. The thinking goes that building a rock solid stable risk framework leads to a rock solid firm. However I think a lesson can be taken from the design of fighter jets. Perhaps a rock solid risk system is putting too much rigidity into the firm’s culture and thus when a crisis does occur the firm does not have the degrees of freedom necessary to take effective action. The inertia of the firm’s risk system does not protect, but actually makes the firm more vulnerable.
No comments:
Post a Comment