One Forty-Thousandth

 

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*

*/Follow us on Twitter/* [1]

I took a bit of a break last week to get away and try to squeeze a little bit
more summer out before it is gone for good.  As part of that I had a nice
leisurely stay at my sister's cottage.  Like all good cottages (and
doctor's offices) she has a stack of old magazines, which in my brain dead
state of mind I started to peruse.

While looking through one magazine that was five or six years old (maybe
older, maybe newer) I came across a car ad for a mid-priced car that had as a
header in bold letters "1/40,000 of a second".  It was an ad touting how
accurate the clock in the car was.  Now I am not so thick as to miss the
point that the ad is trying to get across – namely if they spend that much
effort on getting the clock to such a fine degree of accuracy, how well must
the rest of the car be put together.  However the rest of the ad gave no
indication of how well the rest of the car actually was put together.  The
entire ad focused on the clock! 

Now I don't know about you, but I really do not care if the clock in my car
is accurate to within one forty thousandth of a second or four seconds. 
Furthermore I can't tell the difference and neither can you.  Thus this
car company is wasting its time, and its energy on telling time.  Its energy
and its focus is totally misdirected.  Very accurate, but misdirected.

Now that I am back from my mini-vacation I cannot help but wonder how much
risk management is like that car company.  That is, how much risk management
is putting a lot of energy and effort into measuring some aspect of risk to a
very precise degree, when in reality it is focusing on the wrong things?


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