Risk Education

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

*/Follow us on Twitter/* [1]

There is a lot of popular support for introducing more financial education
into the public school system.  While I in principle agree with that
(although I wonder what you take out to make room for it), I would like to
propose that perhaps first we should introduce risk education into the school
system.

An understanding of risk is key for virtually all areas of business and most
areas of our daily lives.  An understanding of risk and decision making is
also key to understanding geopolitical events and macro issues such as
climate warming, fracking and basic economics.  Understanding risk is also
key in many personal issues such as making choices about medical care, or
even career choices.  Additionally understanding risk is also key to
understanding financial issues.

Think about how the media would present stories involving the major issues of
the day if more people had a better understanding of risk.  Imagine how the
politicians would have to change their messaging strategies if they knew they
would be called out if they tried to mislead through faulty risk logic. 
Imagine what would happen to the role of regulators if there was a greater
general understanding of risk.  Having a risk educated populous just might
change things for the better.  (And along the way I suspect all would also
be naturally better financial decision makers.)


[1] https://twitter.com/rsdsolutions

Risk is Good

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

*/Follow us on Twitter/* [1]

I have written a lot about how we need to view risk as "the possibility
that bad or good things may happen".  Risk is two sided – there is good
risk, and there is bad risk.  There are a lot of reasons why this definition
should be used, and there are a lot of reasons why risk is most commonly
defined as "bad things happening".

To counteract this, perhaps it is time to swing the pendulum too far the
other way in hopes of getting a result closer to the middle.  Thus I propose
that you go an entire week only thinking about the good side of risk.

In that spirit I will get us started:

·       It might be sunnier this week than expected

·       I might write more grammatically correct sentences than usual

·       More people than usual will think of risk management as the
"Department of How to Do it Better" rather than the "Department of
No"

·       Financial markets might move in our favour

·       Cash flow might be more positive than expected

·       Accounts Receivable might be collected faster than projected

·       The company's public reputation might receive an unexpected
boost

·       Stakeholder satisfaction might soar

Feel free to add your own items to the list ….


[1] https://twitter.com/rsdsolutions

100 Most Creative People

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

*/Follow us on Twitter/* [1]

The Most Creative People in Business issue of Fast Company is currently on
the newsstands.  It is one of my favorite issues of one of my favorite
magazines.  Browsing through it I immediately noticed that there were no
people with the title of risk manager listed.  I did not check "Most
Creative People" issues from previous years, but I suspect that there has
never been a risk manager named to the annual list. 

I believe that risk management is a creative field.  However with the
proliferation of regulation and frameworks it has become a field of
compliance rather than creativity.  That is simply not good.

Looking through the Most Creative People issue of Fast Company, and reading
the profiles, achievements, and mindsets of the individuals listed, one
quickly realizes that each of them is actually practicing risk management in
their own way, and each of them has become successful because of their risk
management skills – even though they are in professions very different from
risk management.

Good risk management and creativity go hand in hand.  Hopefully soon, a risk
manager will be cited as one of the most creative people in business.


[1] https://twitter.com/rsdsolutions

Sugar Cookies

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

*/Follow us on Twitter/* [1]

Growing up, the sugar cookies that my mother made were one of my favorites. 
However reading an abridged transcript of a convocation address in the Wall
Street Journal by Adm. William H. McRaven gave me another thing to think
about when someone mentions sugar cookies.  Adm. McRaven was addressing the
graduates of the University of Texas at Austin and explaining "Life Lessons
From Navy SEAL Training",
http://online.wsj.com/news/articles/SB10001424052702303480304579578012692476736?mg=reno64-wsj
[2]

In Adm. McRaven's speech, he describes a sugar cookie as a punishment you
receive when failing uniform inspection.  When you failed uniform
inspection, you were required to run fully clothed into the ocean, and then
while still soaking wet roll around on the beach until you were covered in
sand.  The rest of the day would then be spent in your cold, damp and sandy
outfit.  This effect was known as a Sugar Cookie.

Notice that it was "when" you failed inspection and not "if" you
failed inspection.  Adm. McRaven's point was that at some point of time we
are all going to fail and fall short of our standards.  You simply cannot
pass each and every time.  In Adm. McRaven's words, "Sometimes, no
matter how well you prepare or how well you perform, you still end up as a
sugar cookie."

I think this is an important lesson for risk managers and for those who deal
with risk management.  "Sometimes, no matter how well you prepare or how
well you perform, you still end up as a sugar cookie."  And this is
despite the fact that my mother used to make them as a reward for my doing
good.


[1] https://twitter.com/rsdsolutions
[2]
http://online.wsj.com/news/articles/SB10001424052702303480304579578012692476736?mg=reno64-wsj

Robots

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

*/Follow us on Twitter/* [1]

Robots have displaced a lot of the traditional American workforce.  In many
cases, robots can weld things quicker, more precisely and more inexpensively
than humans.  They can work with heavier parts and with smaller parts than a
human can.  They can also sense when there is a need to make adjustments
better than a human can. 

Many professions have a lot to fear about being replaced by robots (and their
thinking cousins computers).  However robots (and computers) are not people,
and thus as long as there are people in organizations there will be a need
for human risk managers.  Risk is about managing people, and only people can
effectively manage people.


[1] https://twitter.com/rsdsolutions

Assembly Line

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

*/Follow us on Twitter/* [1]

The assembly line as we all know is great for mass production.  The assembly
line is by far the most efficient method for churning completely fungible
parts out one after the other. 

Risk however is not fungible.  Risk is constantly changing in different ways
and is unique to each organization and to each context.  Mass production and
the assembly line are not ideal for risk management – despite what the
academics, certification programs and regulators seem to be thinking.


[1] https://twitter.com/rsdsolutions

Stop Stealing Dreams Part 1

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

*/Follow us on Twitter/* [1]

Once again, Seth Godin has provided the inspiration for a series of blogs. 
I am referring to one of his recent e-books called Stop Stealing Dreams: 
What is School For?  The free e-book is available on his website,
http://sethgodin.typepad.com/files/stop-stealing-dreams6print.pdf [2]  .

This e-book is a fascinating examination of schooling, something that I am
very interested in as a University Professor.  However it also has a lot of
relevant points that are easily translatable to risk management.  After all,
I believe that being a good risk manager requires one to be a knowledgeable,
creative and a good learner – all characteristics that one develops in
school.

In this e-book, which is written more like a series of blogs, Godin attacks
the school system on many accounts; the main one being its cookie cutter
approach to learning.

In risk management I think there are parallels in that we are starting to
treat risk management as well with a cookie cutter approach.  Global
regulations, risk frameworks, and a focus on objective risk measurements are
all characteristics of cookie cutter thinking.  However, just as cookie
cutter thinking produces middling results in schooling, I put forward that it
also produces middling results in risk management.  Godin, like Ken Robinson
(his most watched Ted talk is here
http://www.ted.com/talks/ken_robinson_says_schools_kill_creativity [3] )
believes that a standardized approach to learning is suboptimal.  I believe
a standardized approach to risk management is also sub-optimal. 

In the next few blogs, I will be taking points from Godin's school
manifesto and applying them to risk management.  I may not want to, or be
able to steal dreams, but I can and I will borrow ideas.


[1] https://twitter.com/rsdsolutions
[2] http://sethgodin.typepad.com/files/stop-stealing-dreams6print.pdf
[3] http://www.ted.com/talks/ken_robinson_says_schools_kill_creativity