Risk = Probability X Consequences. Really?

“Wall Street thought it had risk all figured out…” should read that they figured out a marketing message given kudos by the number of Phd’s, MBA’s etc. employed by organisations whose appetite for individual/collective wealth and power was enabled by regulatory and credit (rating) regimes that suited the aspirations of politicians ALL at the expense of their citizens (customers) i.e. those that give them the means to function.

Their own greed and inability to continue to control information that exposed it, has been their undoing. Access to INFORMATION has enhanced our knowledge to such an extent that we have been able to recognise the MISINFORMATION that was presented as ‘knowledge and expertise’.

They created and profited from a volitile financial environment that, once globally interconnected, is beyond their control but, for as long as profits can be privatised and losses socialised, they will not suffer…until what has been ‘hidden in plain view’ can no longer be tolerated or sustained.

Time is nearly up.

Ontonix QCM Blog

Nik-Wallenda-tightroping-over-Niagara-Falls-1cv324b (image from www.impactlab.net )

Probably the most frequently used definition of risk is this one:

Risk = the Probability of something happening X resulting Cost/Consequences

This definition is flawed because of two fundamental reasons, which the formula itself suggests very eloquently:

1. Estimation of probabilities of future events is very difficult (while it is considerably easier when talking of past events). Rare events have very low probabilities and these are extremely difficult to estimate due to the fact that the sample of available data is very small (what is the probability of an event similar to 9/11?). Since this factor multiplies the “cost” in the above equation it is of paramount importance.

2. Estimation of the costs/consequences of these events. This is most difficult. Even after a catastrophic event it is difficult to estimate the total damage and cost.

However, the most important flaw is hidden and it is conceptual…

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Growth, Transformation & Progress

There are many good reasons to question what we are taught and (yet again) Giles Hutchins tells it how it is. Of course, if you read any of my past blogs, particularly dealing with Panarchy and the Panarchic Cycle, it wont come as a great surprise that we are ‘on the same page’.

I frequently ask myself and others, “how do you know what you know”? The reason is so that we question, not just the basis of our knowledge but that of those who would presume to ‘educate’. Given that we now understand so much more about the, miraculous, fractal nature of our own biology and the striking similarities in structure and cycles affecting other systems seen in Nature, it is surprising that we are still prone to work against Nature by attempting to apply our linear thinking in an effort to control or regulate.

It is, perhaps, no great surprise that the knowledge of subject matter experts can often be seen to be ‘lacking’ or based upon knowledge that has been superseded but that vital information has not reached them or has not penetrated the walls of conventional wisdom…or herd mentality, i.e. the belief system that is the basis of their status as experts. They continue to infect enquiring minds with tainted knowledge, rather than understanding: the blinded leading the blind.

Of course there are those who, knowingly and without conscience, indoctrinate others, in return for the promise of rewards in this life (or the next). These individuals will go to extreme lengths to satisfy their master(s) so the question is worth remembering the next time someone presumes to tell you ‘how it is’…because greed, fear and ego are powerful drivers and many have been ‘blinded’ in the pursuit of truth and understanding!

…in these transformational times, organisations and their leaders need to embrace transformational change: death/rebirth, breakdown/breakthrough. In the words of Dawn Vance, Global Head of Logistics for Nike:

‘Organisations have three options:

1) Hit the wall;

2) Optimise and delay hitting the wall;

3) Redesign for resilience.’

Many organisations today – for profit and non-profit – busy themselves with optimising the existing business model which is only delaying the inevitable car crash

via Growth, Transformation & Progress.

Entropy, Structure and Critical Complexity

If you want to accomplish more you must become more complex. This means two things: structure and entropy. Structure is what defines functionality, entropy is what allows a system to react in a creative and novel way to a changing and possibly harsh environment


Can Complexity Thinking Fix Capitalism?

See on Scoop.itComplexity & Resilience

Can Complexity Thinking Advance Management and Fix Capitalism?

David G Wilson‘s insight:

“An intense effort at regulating the banks has side-stepped the root cause—a lack of transparency—and instead has tried to build fences around the problem. But fences won’t help in the case of a global financial meltdown: the amounts of money involved are just too large. If we want to avoid an even larger meltdown in future, the only solution is to have transparency on what the banks are up to. It’s possible that complexity thinkers like Mark Buchanan may be able to help devise mechanisms that constitute a step towards the needed transparency. But the key requirement here is political will to insist on transparency, not the modelling of complexity science”


See on www.forbes.com

Is Risk Management a Source of Risk

See on Scoop.itComplexity & Resilience

If you have risk function, however, that fully understands the business model, the deployment of its operational strategy, the sector the business operates in and the macro-economic and socio-political environment in which it operates, then they will be able to provide risk information that is relevant to the business, and can be understood by the business.

David G Wilson‘s insight:

‘Knowledge’ that fails to distinguish between practises that are based upon sound theory and those that rely upon flawed models and assumption-based modelling, do not lead to understanding but to feedback loops of unintended consequences…patterns and correlations of our own making!

Unidentified sources of risk and ill-informed (albeit well-intentioned) efforts to manage without UNDERSTANDING ‘causal relationships‘ has the opposite of the desired effect…

…unmanaged risk does not dissipate but is a source of systemic risk, mis-managed, it adds complexity is amplified through the business’ interdependencies and interactions, feeding-back as volatility and adding to uncertainty.

‘Conventional wisdom’ (or herd mentality) based upon assumptions of knowledge, can/does impair our ability to understand and address issues at source.

Before we had the tools to increase our knowledge we were ignorant but, to have the tools and not use them is dangerous and costly ineptitude!:

‘Corporate Latency’ is a significant source of, reducible, exposure in every domain and, unless it is better managed, we cannot build resilient systems or create ecosystems that can claim to be truly sustainable.

See on ontonix.blogspot.it