Small Risk Missteps Equal Good Risk

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

We spend way too much time trying to be perfect in our risk management.  Media, bosses, supervisors, shareholders, creditors, regulators et. al. want their respective organizations to not have any missteps.  However this is very poor risk management in my opinion.  Being perfect has many flaws to it.  First off it creates a sense of arrogance, overconfidence and hubris that is way more dangerous than any series of small missteps.  Secondly there is the case of risk homeostasis that I have written about before at length.  

 

The main thing though that I want to mention in this blog is that small missteps prevent the big one.  Small missteps allow the organization to learn and adapt.  Small missteps allow the internal risk of an organization to let off some steam.  They prevent risks from building to an unsustainable level of criticality that will inevitably become unstoppable.  Small missteps are good, not bad.

Safety for today but not for tomorrow. A conundrum.

by Michael Arbow, MBA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

It was with interest that I read “Can a playground be too safe” which has it all when it comes to counter-intuitive risk management and can so easily be translated from the playground to the boardroom (the big person’s playground?).  First, as playground surfaces become “softer”, children (and parents) are over-perceiving the safety of the surfaces and thus taking greater risk at play and experiencing just as many injuries as paved or grassed surfaces (this risk phenomena is call homeostasis).  Second, as government’s worry about litigation and medical bills, playground equipment is getting lower to the ground and platforms tend to be railed in.  This reduction of risk according to critics “may stunt emotional development, leaving children with anxieties and fears that are ultimately worse than a broken bone.”

 

Arguably what we learn in the playground ultimately becomes part of our adult self.  Looking at the way some firms handle risks we see the safe playground move to the boardroom.  Companies develop risk management systems that staff trusts emphatically with dire results as they push the envelope thinking they are protected from downside risk.  In addition to this companies may develop risk programs that reduce downside risk for the quarter but at the cost of reducing the long term profitability and competitiveness of the firm.

 

For more on this subject follow the link to the New York Times article “Can a Playground be too Safe”:

http://tinyurl.com/3baekhe

Red Rover. Red Rover. We calllll,… the Risk Manager over

by Michael Arbow, MBA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

A few months ago, I wrote a blog about the closing of toboggan hills as a way that towns in the US were attempting to reduce their risk exposure.  Well it seems that some government officials in New York state want to reduce their risk exposure in the summer as well.  The target this time is summer day camp games such as Red Rover (a game I played endlessly growing up in Toronto), kickball and of course the most dangerous – tag.  Unlike the toboggan ban, cooler (?) heads have prevailed and New York state’s children will still be allowed to get fit, learn strategy and share laughs while playing the aforementioned summer games. 

Perhaps what the State Sen. Patricia Ritchie of Watertown may have unconsciously realized is a phenomenon in risk management we call risk homeostasis: that is, by reducing risk you actually increase risk taking behavior.  In this case, with the opportunity to playing tag removed from day camp activities what activity would replace it and could it have been even more risky.  Of course the other problem Sen. Ritchie may have seen is that the cost of reducing playground risk may have been greater than the benefits of happy, out of breath children. 

So the question is, is your organization a victim of risk homeostasis?  In other words have you reduced risk to such a high level of confidence that you are now blind to the new risks that that feeling of safety introduces?

 

For more on risk in the playground click on the link to the NBC story:

http://tinyurl.com/3nu4xvn