Risk, Uncertainty, Surprises

 

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


In our overly regimented, legalistic and regulated world, we tend to become
overly fond of and dependent on labels.  This is not entirely inappropriate
as labels convey meaning, both explicitly and implicitly.  Different words,
meaning the same thing can convey very different meanings depending on the
context, the speaker and especially the reader / listener.

In risk management two words or labels arise again and again; risk and
uncertainty.  Often they are used interchangeably.  Amongst the more highly
educated (but not necessarily the more intelligent) the words are carefully
segregated with risk being those events that can be assigned a given
probability distribution while uncertainty is strictly reserved for events
that cannot be characterized by a probability distribution.  This
distinction however generally only leads to discussions that border on the
purely philosophical about measurement theories.

Perhaps it is time to add a third label to the risk lexicon, namely
surprises.   Perhaps risk management should become surprise management, and
Chief Risk Officers should become Chief Surprise Officers.  Admit it –
this simple change of words totally and instantaneously changed your view of
risk management didn't it?  In fact, it probably brought on a chuckle and
a thought such as "we already are the department of surprise
management". 

Now that you have had your laugh, is it really that silly or farcical of an
idea?  It gets rid of the practical false dichotomy between the words risk
and uncertainty. (I will admit that the mathematical dichotomy is real and
useful.)  However it would also change how everyone thinks about risk
management – and that change just might be more practical, efficient and
better in the long run.  Take the idea up with your CSO. 

Gardens Not Buildings

 

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

*/FOLLOW US ON TWITTER [1]/*

I am going to steal yet another idea from Seth Godin.  (I get my ideas and
inspiration from wherever I can – not a bad mindset for risk managers to
adopt).  Last week, Mr. Godin posted a blog called Gardens Not Buildings. 
The link is here. 
http://sethgodin.typepad.com/seths_blog/2013/07/gardens-not-buildings.html
[2]

Paraphrasing the article, Godin compares the engineering and rigidity that
goes into a creating a building, while a garden grows, evolves and develops a
personality over time.

I believe that in risk management we are way too focused on building what we
foolishly and misguidedly hope is permanent buildings of risk processes,
procedures and regulations.  In contrast I believe it is much more
productive to let risk management procedures be more organic – much like
gardens.

Buildings collapse, gardens don't.


[1]
http://twitter.com/intent/follow?original_referer=https://twitter.com/about/resources/buttons&region=follow_link&screen_name=RSDsolutions&tw_p=followbutton&variant=2.0
[2]
http://sethgodin.typepad.com/seths_blog/2013/07/gardens-not-buildings.html

Risk Equals Happy

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

A friend of mind with a very sharp and eclectic mind (the best type of
friends to have) sent me an article from the July issue of Psychology
Today.  The article entitled "What Happy People Do Differently [1]" was
authored by Robert Biswas-Diener and Todd Kashdan.

One of the key points of the article is that happy people explore outside of
their comfort zones.  In other words, there are "real rewards of
risk".  While we can have a debate about whether or not corporations are
psychologically capable of happiness (or even what that would mean), I
believe the central tenet of the article holds for corporations as well as
individuals; namely there are real benefits to taking risks.

Anyone who reads my blogs regularly knows that I am a huge proponent of risk
as being viewed as two sided – that is there is good risk and bad risk, and
risk management involves managing both types of risk.  With this mindset
there are real benefits of risk.

Individuals who do not take chances tend to live boring and unhappy lives –
basically the premise of the Psychology Today article.  Likewise
organizations that do not take risks produce boring and relatively mediocre
profits. 

However there may be another even more significant (bad) risk lurking within
corporations that do not want to take risks – namely the risk that risk
averse corporations attract unhappy risk averse employees.


[1]
http://www.psychologytoday.com/articles/201306/what-happy-people-do-differently

What or Why Risk Training

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

Risk training is obviously a hot topic at the moment.  It has certainly kept
us busy here at RSD Solutions.  Before you design your next risk training
interaction I would like to point out a few of the differences between
"What" focus training, and "Why" focus training.

"What" focused training tells the participants what has to be done, while
"Why" focused training gets participants to understand the reasons for
why.

A "What" focus to training produces participants who are capable of doing
things.  A "Why" focus produces participants who can do things but also
understand why.  Understanding why to do things provides the knowledge to
know when the rules or procedures will be broken – and there will be times
when a rule or procedure will need to be broken.

A "What" focus is not engaging.  A "Why" focus engages the
participants.  Engaged participants become engaged employees.  Engaged
employees have several benefits including more buy in to risk culture and
strategy and a ground level source of risk improvement ideas to name just two
benefits.

A "What" focus produces knowledge.  A "Why" focus produces wisdom.

A "What" focus produces stasis.  A "Why" focus produces risk growth.

So what's your training focus?