Low Tech or High Tech (Vicente Series Part 5)

by Rick Nason, PhD, CFA

RSD Solutions Inc.

www.RSDsolutions.com

info@RSdsolutions.com

We all have seen high tech risk management systems (and processes).  Every risk conference has software vendors all putting forth the latest and greatest in terms of systems that will put your firm in complete control.  These systems are truly impressive in terms of their scope and their attention to the state of the art in risk management.

We also know firms that manage their risks through “low-tech”.  Very simple systems that are perhaps captured solely on a sheet of paper, perhaps in an Excel template, or in the simplest cases perhaps in a senior executive's head (and with significant gut-feel).

Many firms have a hybrid form of risk management system.  They have a high-tech system, but rely on the low-tech decisions of senior managers.

As Vicente puts forth in his book, perhaps it is time that we spent more time thinking about Human Tech risk management systems.  That is, risk management systems and processes that use the best of technology and techniques, but also engage the people who have to implement them, and make decisions based on their output.  These are the types of risk management systems that are not only practical, but also efficient and effective.

Which type of risk management system does your firm use?  Which type of risk management system should it use?  How many people in your organization have considered that question?

Wizards (Vincente series Part 4)

by Rick Nason, PhD, CFA

RSD Solutions Inc.

www.RSDsolutions.com

info@RSdsolutions.com

Continuing with a quote from the book by Kim Vicente, “The Human Factor”; 

“… so generally the wizards are put in sole charge of technological development because we don’t believe the technically challenged Humanists have anything to offer …”

Does the quote not sum up a lot of risk management systems?  As a so-called “wizard” (back-ground in physics, and a PhD in Finance), I should be appalled that someone implies even remotely that “Humanists” have something to offer in terms of risk management.  Of course risk management should be technically advanced, and developed using the best systems and techniques that technologically advanced wizards can create – shouldn’t it?

Or is there something that humanists can offer?

Follow On To Information Not Data (Vicente Series Part 2a)

by Rick Nason, PhD, CFA

RSD Solutions Inc.

www.RSDsolutions.com

info@RSdsolutions.com

In my previous blog I talked about information not data.  We have so much data coming at us that it is hard to make out the important information.  Hard to see the forest for the trees, if you will.

In risk management, where data is flying at us from all angles (and data and software vendors even more so), how do we handle it?

Seth Godin in one of his recent blogs (The Blizzard of Noise  http://sethgodin.typepad.com/seths_blog/2010/08/the-blizzard-of-noise-and-the-good-news.html ) talks about a similar situation in the general population where we are constantly bombarded with advertisements and such trying to get our attention.  In that realm it is well known that we turn to our friends to help us sort the wheat from the chaff – to separate the good stuff from the noise.  In other words, in a world flooded with impersonal information, we ironically come to rely more on more on our personal relationships.

Now think about risk management.  The trend over the last 20 years has been to make risk management more objective and scientific.  That means more data and mathematics, and less personal relationships or intuition.  However it is people and interpersonal relationships that make the world go round.  Is your risk system running on noise and data, or is it running on information and personal relationships?

Information Not Data (Vicente Series Part 2)

by Rick Nason, PhD, CFA

RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

In the beginning of the book, The Human Factor: Revolutionizing the Way We Live with Technology, author Kim Vicente tells the well known story of the Chernobyl disaster.  However he tells it from the viewpoint of one of the plant’s operators, Leonid Toptunov.

Vicente outlines the various factors that led to the reactor getting to a critical stage, and the response of the plant’s operators that night.  The operators knew that things were not going right, but because of an experiment going on in the plant they also were not expecting things to be as normal.  Then Vicente pens this line;

“To make matters worse, the thousands of indicators on the wall sized consoles in front of Toptunov presented a bewildering array of data, but not enough information, and so the gravity of the situation wasn’t obvious to him.”

Data not information – I thought that was interesting and related to a parallel in risk management.  In our quest for risk management completeness, we often stress collecting more data at the expense of information.  Information, not data should be the quest of a good risk management system.

(A series of blogs in a few weeks will outline some of the wonderful suggestions in Stephen Few’s book titled “Information Dashboard Design” which covers the information not data problem.)

The Human Factor (Vicente Series Part 1)

by Rick Nason, PhD, CFA
RSD Solutions Inc.
www.RSDsolutions.com
info@RSdsolutions.com

In 2003, Kim Vicente wrote a book called the Human Factor: Revolutionizing the Way We Live with Technology. It is a delightful read about design and the interface between humans and technology – the “human-tech” interface. The Amazon link is here.

http://www.amazon.com/Human-Factor-Revolutionizing-People-Technology/dp/0415978912/ref=sr_1_3?ie=UTF8&s=books&qid=1282915483&sr=8-3

While the book is not about risk management per se (although it has lots of examples drawn from risk management including the Chernobyl disaster through to the Walkerton water tragedy in Canada) it does have a lot of lessons to teach those of us in risk management – including those of us in financial risk management and enterprise risk management. As such I plan on writing a series of blogs inspired by this book – thus the Vicente Series.

To begin I think it is relevant to consider how we design our risk management systems so that they can be related to by managers and other stakeholders. As an example, let’s look at one of our most basic financial risk management statements – accounting statements. In fairness to accountants, I realize that their objective is not risk management per se. However their objective is to give an accurate reading of the financial state of a company. Now this raises a question – does anyone outside of a few experts really understand bank financial statements?

One of the issues that became clear during the financial crisis when financial institutions were attempting to merge – or at least prevent themselves from collapsing, is that no one really understood what the true financial state of a firm was. Firms such as Lehman and Bear Stearns fell more based on rumour rather than an accurate assessment of their financial health. The “merger” of Merrill Lynch into Bank of America was obviously not based on a full and clear understanding of the financial state of either firm.

If something as basic as financial accounting proves to be so baffling to its users, what does it say about the rest of our risk management systems? Are they really designed any better to help the “human-tech” interface? Are your risk systems designed for the “human-tech” interface? More from Vicente in future blogs.

C.P. Snow – Prescient Risk Expert (Vicente Series Part 3)

by Rick Nason, PhD, CFA

RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

Kim Vicente, author of the book, The Human Factor: Revolutionizing the Way We Live with Technology, quotes comments that C.P. Snow made in his 1959 essay “The Two Cultures”.  To quote Vicente, who in turn is quoting Snow;

“…’the intellectual life of the whole of the western society is increasingly being split into two polar groups’ – science and art.  The gulf between technical / analytical thinking on the one hand and creative / Humanistic thinking on the other was already so deep that ‘those in the two cultures can’t talk to each other’.   … ‘When those two senses have grown apart, then no society is going to be able to think with wisdom …’”

Readers of my blogs – or someone who has attended one of my speeches or seminars - knows that this is a theme that I have been pounding away at for some time.  (Unfortunately my words and my thinking are not as clear as C.P.Snow’s.)

The question that must be constantly asked is has our risk function become so siloed and specialized that as an institution we have lost the ability “to think with wisdom”?

Programming Blog Addendum

by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc
www.RSDsolutions.com
info@RSDsolutions.com

“For every foolproof system, there is a bigger fool.”

Edward Teller (one of the developers of the hydrogen bomb)

In the context of risk management, need I say anything more?