Thinking Templates

 

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


I am currently in the middle of marking exams for a MBA course I teach on
Quantitative Decision Making.  In this course, as in all of my courses, I
strive to convince students that knowledge is a commodity and learning how to
think is more important.  In part to walk the talk, I allow my students to
have open book exams and to use a computer on the exam.  This of course
means that they can use computer software packages etc.

In preparation for the exam, many students will create answer templates for
the types of questions that they expect me to ask.  Some students go so far
as to seek out commercially available packages.  I am all in favour of this,
since in the process of doing so the students are probably doing a better job
of studying than they would if they were attempting to memorize a textbook (a
deadbrain exercise in and of itself).

The problem arises however with students who blindly follow their
templates.  Rarely in life does a problem conform exactly to whatever
template you might construct, and in the case of my exams that is also
generally true.  However students are more confident in the ability of their
template than they are in their ability to think.  Or perhaps they are too
lazy to think and thus rely on the template.  Either way it generally does
not end well.  Templates do not think.  Furthermore, any problem that is
solvable by a template is probably not worthy of the attention of someone
with a graduate degree such as an MBA.

In risk management we also tend to rely on templates.  (Anyone seen a risk
audit template?)  In regulation we are almost totally reliant on templates
– although bureaucrats would never label their proclamations as such.  As
with the students writing my exams who rely on a template, risk practitioners
and companies (and regulators) that rely on templates see outcomes that are
rarely satisfactory.  Templates do not think.  The real world rarely
conforms to a template except in the most simplistic of situations.

I realize that many consultants rely on templates – they generally have
fancier names for them.  Many consultants market themselves on the strength
of their template(s).  But again, templates do not think.  Templates do not
adapt.  Templates do not create paradigm shifts.  Templates do not see
unique opportunities.  Instead templates are static, backward looking,
unthinking processes that time and reality quickly pass by.

Now if only there was a foolproof template for marking.

Perfect

 

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

What if everything was always perfect with a company?  In other words, what
if a company never made a mistake, never had a debacle, and never made the
front page of the business news for all of the wrong reasons?  Furthermore,
what if projections were very clear that this good fortune would continue
indefinitely into the future?   Such a company is obviously fictitious, but
would our fictitious company still need a risk management unit?

Those who argue that risk management is solely to take care of downside risk
would clearly answer no – the company would not need a risk management
unit.

Those who subscribe to the idea that risk is maximizing the probability and
magnitude of good risk events happening, while also managing so as to
minimize the probability and severity of bad risk events would argue yes.

Just because a company does not suffer downside risk does not mean that it is
perfect.  If anything it probably means that the company is stale and far
from maximizing opportunities.  In fact, it is likely that a company that
never experiences downside risk is a company most in need of a competent risk
management unit.