Surfing or Passion?

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

Last week I read Yvon Chouinard’s book “Let My People Go Surfing”.  Yvon is the founder of Patagonia clothing company and I think I may be the last business person on the planet to have read his book.   In case you have not read it, it is the story of his founding of the company and the many path-breaking business principles that he and his associates founded, such as on-site day-care and flex time, etc. etc.  The book also outlines how he, his company and his associates became passionate and active supporters of environmental causes.

The book is a fascinating case study in how to run a company.  So many of the business practices that Yvon and his partner’s started are now common-place benchmarks – but they were anything but when he first introduced them.

When the company first started making mountain climbing gear, they warned their customers not to expect fast service during mountain climbing season as they (the founders) would be out mountain climbing rather than filling customer orders.  This passion for activity and passion in their chosen field, rather than following best business practices turned out quite well for them.  The title of the book of course refers to the fact that employees are encouraged to go surfing when the conditions are good, rather than wait until the 5 o’clock whistle has blown.

Yvon is obviously a very smart but also a very charismatic person.  (I assume he is charismatic from the way that the book was written.)  His company is a blue-print for many others that have tried to follow in his footpaths.  His book is also a popular read amongst B-school types. 

This brings up an interesting question.  Is Patagonia and Yvon successful because of his passion for mountain climbing and surfing, or is he successful because of his passion, or is he successful because of his education (he basically has no formal post-secondary education)?  Can risk managers be successful in the same way?

Simulation Exercise

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

This past weekend, the MBA students at the school where I am an Associate Professor (Dalhousie University) completed a weekend long computer simulation exercise.  The well-known computer simulation – that many MBA programs utilize – is quite complex as it incorporates a wide variety of interconnected factors as it tries to give students a feel for what it is like to make decisions in a real-world competitive environment.

The students appeared to enjoy participating in the simulation quite a bit and I took the time out to sit in on the debrief which was being conducted by one of the schools more engaging professors.  The professor had the students going discussing the thinking that led to their success or failure in the complex simulation. 

After a short period of time, the discussion amongst the students was quite lively.  However, it took a turn that perhaps was unexpected by the professor.  Despite his best efforts to steer the conversation towards business principles, the students kept steering the conversation towards their efforts to reverse engineer the game.  In other words the students who were best at the game were not necessarily winning because they were using the best business practices.  Instead they were winning because they were best at figuring out the artificial constraints and limitations of the computer simulation.

Here is the issue for risk management:  do we become good risk managers because we make good risk based decisions or because we make decisions that are based on how the artificial constraints and limitations of the risk management game (and regulatory game) are imposed?

Getting Older

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

I am just about finished rereading a book that I bought several years ago.  When I first bought the book and read it, I did not really like it.  It was ok, but no real insight was gained, and it did not stimulate any cool thoughts. 

For some reason that I really cannot state I started re-reading the book last week again.  Why I would re-read a book that I did not particularly like the first time through is an interesting question.  I guess I was bored and too lazy to seek something else better to read at that particular time.

The funny thing is though that I am really enjoying the book this time through.  I am getting a lot of great ideas from it, and find it quite stimulating.  Why?  I have no idea other than the fact that I am now about 10 years older.  Does that mean that I am also 10 years wiser and thus more able to appreciate things that I glossed over before?  Or does it mean that I have forgotten so much that virtually everything is new and exciting for me as if I am seeing it for the very first time?

Risk Smile

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

I bet when you clicked on this link you thought there would be something about volatility smiles.  Probably not for a couple of weeks though (that is when I discuss that topic with my MBA Derivatives class).  Nope, this blog is about smiling.  That is the thing that you do when you are happy and cheerful.

In this blog I would like to ask you if your risk department, or your risk consultants make you smile.  Do they?  If you are a risk manager, or a risk consultant, do you make other people in the organization smile?  That is, while you are doing your job.

I think that risk managers should be making people smile.  Risk management is about getting things done in a prudent manner.  Risk management is about creating peace of mind.  Risk management is about creating opportunities.  Risk management is about increasing the probability and magnitude of good risk events happening (while decreasing the probability and severity of bad risk events happening).  All of these are good things.  Good things make people smile.  (….with apologies to Martha Stewart).

Fighter Jets and Chaos

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

I was doing a bit of studying lately on Chaos, which is a field of science that has interested me since I was in high school.  As a field of study it is really quite neat, but not as practical as complexity.  The issue is that it is harder to get academic papers published in complexity and thus the scientific establishment pushes forward with chaos.

One of the things I learned earlier this week in my readings was that fighter jets are designed to be chaotic.  That is they are specifically designed to be unstable.  While this might be an undesirable trait in a commercial airliner, it is very attractive for fighter planes.  The instability – chaos – allows the plane to be much more maneuverable in crisis situations.  The instability actually serves a useful and valuable purpose.

This led me to consider the use of risk systems by most firms.  The goal in risk management – to my chagrin – has been to create ever more inflexible risk systems and frameworks.  The thinking goes that building a rock solid stable risk framework leads to a rock solid firm.  However I think a lesson can be taken from the design of fighter jets.  Perhaps a rock solid risk system is putting too much rigidity into the firm’s culture and thus when a crisis does occur the firm does not have the degrees of freedom necessary to take effective action.  The inertia of the firm’s risk system does not protect, but actually makes the firm more vulnerable. 

Perhaps it is time to add more chaos to get less chaos.  After all, isn’t business just like war?

Rethinking Risk

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

Seems like I’ve been on airplanes a lot lately.  That means reading too many magazines and other mindless drivel while waiting to get into the air.  (It is impossible to read anything of seriousness while everyone tries to carry their “piece of luggage plus briefcase” down the aisle.  They never fail to bang the arms of every passenger who has boarded before them.  As an air-warrior I get to board first with the other air-warriors, and I do so solely so I can get my own “piece of luggage plus briefcase” into the overhead bin.)

In any case I have been reading a lot of magazines lately which means that I have been reading a lot of print advertising.  This in turn means that I have been reading a lot of words about rethinking this or rethinking that.  Rethinking the car!  Rethinking the TV!  Rethinking the bar of soap – or whatever.

Reading the business press we also have a lot of articles about rethinking ethics, rethinking capitalism, rethinking banking rules, rethinking risk, rethinking business.

What if we simply stop rethinking, and instead start thinking?

Humans Are Special

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

Read an article on Jarion Lanier recently – one of the fathers of virtual reality amongst other things.  Certainly not a Luddite when it comes to computers and such.

A quote that he made caught my attention. 

“Human’s are special, they’re not computers.”

Hmmmm.  Profound or obvious? 

Now, is your company run by computers or humans?  (Would you prefer that it was run by computers or humans?)  Is the world run by computers or humans?  (Would you like it to be run by computers or humans?)

Is your risk management run by computers or humans?  (Would you like it to be run by computers or humans?)