Almost everyone has heard the story of the boy who cried wolf. The Sheppard boy repeatedly cries “wolf” and
each time the townsfolk come running to save the herd from the wolf – but each
time it is a false alarm and there is no wolf.
Finally a wolf does attack the sheep herd, but no one comes when the boy
cries “wolf”. The townsfolk are tired of
the false warnings and thus do not take the “wolf” signal seriously.
I believe a similar thing may be happening with
risk warnings. For both legal and
regulatory reasons there are so many risk warnings in our daily lives that we
simply ignore all of the warnings just as the townsfolk started to ignore the
cries of “wolf” from the Sheppard boy.
Warning pollution is real, and like all forms of pollution it is not
good.
Friday, February 20, 2015
Wednesday, February 18, 2015
Connecting the Dots
Steve Jobs once famously said that “you cannot connect the dots
going forward”. Every risk manager at
some level understands this. The fact
that the future unfolds in an unpredictable manner is in some way the reason
that the discipline of risk management exists.
It is however a lot easier to connect the dots going backwards – but
this exercise has some hidden traps.
Connecting the dots on what happened is a way to deconstruct a risk
event and learn from it. This (to coin a
phrase from the ‘90s Martha Stewart) is a “good thing”. However it often becomes a bad thing for
several reasons.
Firstly, we are often shallow in connecting the dots going
backwards. We find a few major
correlations, and we assume these correlations are the cause. In reality it is often the much more subtle
and more hidden catalysts that are the loosely connected dots that as risk
managers (and regulators) we need to be looking for and learning from. The reality is that we often superficially
take the first few major dot connections as our answers. Risk is much more nuanced than that. (I will leave the obvious issue of
correlation not necessarily being causation out of the discussion for now.)
Secondly we assume that the same dots will exist going forward. This is frequently incorrect. The dots, and their connections going forward
are usually not the same. Risks and how
they arise evolve, adapt and change. The
same dots will not necessarily produce the same connections and in turn produce
the same results. The effect is
compounded when we include the fact that we likely did too superficial of a job
analyzing the dot connections from the previous risk event – as discussed in
the previous paragraph.
Risk management is not an “if-then” management
exercise. Fortunately, or unfortunately
(depending on your point of view), risk management is not a connect-the-dots coloring
book. (I really enjoyed connect-the-dot
coloring books as a kid.)
Tuesday, February 17, 2015
Rick Nason and Stephen McPhie contribute 2 chapters ….
…. to the book “Implementing Enterprise Risk
Management: Case Studies and Best Practices”, John Wiley and Sons, Edited by
Fraser, Simkins and Narvaez.
The chapters are case studies - Chapter 18 Blue Wood Chocolates and
Chapter 19 Kilgore Custom Milling
You can find the publication on Amazon (among other places).
Monday, February 16, 2015
Garage Door
I am hopeless as a handyman. I know how to start the
snowblower and the lawnmower and that is about it. Someone once showed me
which end of a hammer to hold, but I have long since forgotten. If
something - God forbid - ever happens to my wife, I won't even know how to turn
the heat up or down in the house (I actually have no clue where the thermostat
is in the house - and that is not an exaggeration!)
So needless to say, when the garage door broke this week my wife
called a repairman to fix it. Asking me to try to fix it would have been
a useless step in the process. Anyhow the repairman came this
morning. He came at the appointed time, looked at the door knowingly,
tried to explain to me what was wrong (he was a Newfoundlander, so even if I
did know handyman terms, I still would have only understood every third word at
best), and said he would get it fixed. I nodded at appropriate intervals
in agreement - as if I understood what the issues were. Thirty minutes
later the garage door was fixed and working like new with, in addition, a lot
of new replacement parts in preventive maintenance.
As soon as the repairman started talking I had a strong sense that
he was going to get the job done and get it done right. He had an air of
competence that I completely trusted. I had no doubt in my mind that my
garage door was going to work fine for the next five years at least.
Given that situation, it got me to wondering - what are the
characteristics that would give us the same level of confidence in the competence
of a risk manager? How can we know just by the language and the stance of
a risk manager that they will get the right job done right? Is it more
important to have confidence in the competence of my garage door repairman or
my risk manager?
Meanwhile I am a happy camper as I no longer
will have to run out and manually open and close the garage door for my
wife. Life is good with competence.
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