Complexity, risk, uncertainty and change


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Business management, particularly for those intent upon ‘change’ or responsible for managing exposures, needs a rigorous, objective, measurement of the endogenous properties (complexity) that enables the functionality from which (through interactions with exogenous parties) the business generates the revenues that sustain it in changing and turbulent economic times.

“Complexity increases cost and decreases flexibility — often in unforeseen ways — and also tends to decrease stability,”….

Peter Leukert, CIO of Commerzbank

It is the number, nature and integrity of dynamic, multi-scalar, interactions that are the sources of strength (enabling performance greater than the sum of the parts). The ability to distinguish and respond to ‘signals’, that maintain the variety, effectiveness and agility of the complex system, from the ‘noise’ of flawed metrics, self-serving culture, hierarchical structure (silos), skewed incentives – of an unsustainable, failed or failing, model (reliant upon  assumption, reflexive, subjective, statistical analysis and prediction) that has its foundation in flawed (linear) economic thinking.

We won’t get different or better answers while we keep on asking the same questions.

For meaningful change to occur and to be sustained requires a rigorous justification, sufficient to counter financial projections that satisfy the goals of C-level short-termism that are detrimental to the stability and long term health of the business.

Alignment to the common goals of complex systems: survival, requires informed decision-making, which can be counter-intuitive…which, immediately, poses a problem for ‘conventional wisdom’!

Measuring complexity, as the means to monitor, manage and maintain resilience…also to communicate these properties, through the business ecosystem, to other connected systems…can serve as a platform to cultivate systemic resilience.

Currently the unmanaged risk (that does not dissipate) of processes and sub- systems are amplified and communicated into its ecosystem and through financial systems as uncertainty (reducible or epistemic). ‘Returned’ via feedback loops as volatility we still endeavour to predict and to manage what we lack the requisite complexity to ‘control’ using ill-informed risk/business management.

We have created systems that are sources, superspreaders and casualties of self-generated uncertainty and risk. Victims of our own excess!

Through our misguided attempts to ‘regulate’ and manage systems, in pursuit of unsustainable goals we ‘constrain’ systems that, when aligned to the common purpose, form networks of systems, interdependent sub-systems and processes. Resilient complex systems are self-organising and self-regulating. 

Instead of reducing complexity and working to identify causal relationships (so we may distinguish cause from effect) WE CREATE MORE, which leads us to committing greater resource for diminishing returns!

We need the simplicity on the other side of complexity that Einstein so craved. Occam’s razor NOT more complexity.

There is plenty more reading on ‘business change’ from a complexity, uncertainty and risk perspective to be found here. Enjoy.

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