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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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”

http://wp.me/p16h8c-1tK

See on www.forbes.com

Business Insurance:: ISO 31000 should we believe the hype?


image

Apparently,

“…risk managers should use standards such as ISO 31000, “because standards, no matter what kind or which ones, support key tools and processes.”“Standards allow you to proactively address risks with some discipline,” he said. “Standards also relate well to the whole idea of focusing on outcomes.”

http://www.businessinsurance.com/article/20130602/NEWS06/306029979?template=smartphoneart

Surely the focus should be upon being proactive and ‘managing’ emergent risks, NOT outcomes!?

Where, I suspect, NASA have a distinct (informational) advantage is that the multi-scalar interactions among components, processes, networks of sub-systems and systems are each rigorously tested at every point in assembly and operation…

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How much work does Financial Services still have to do?


Directions

It is a serious question! It genuinely bothers me that FS is rated as less trusted than banking [Edelman Trust Barometer] for the third straight year.

Equally I am incredulous that the UK insurance industry has the audacity to, still, be talking about increasing “professionalism” when the Aldermanbury Declaration is nothing more than yet another attempt at (well-practised) misdirection…or, if you like, ‘turd-polishing’.

Don’t try to see into the future using the past as your lens!

You are looking in the wrong direction. By all means know about and learn from the past but don’t use the wrong lens to try to look too far ahead. As a concerned mother of my parents’ generation would say “you’ll just strain your eyes”! Look within: not necessarily in some mystical or philosophical sense – although there are numerous historical references that still hold good – but in a practical manner as far as the structure, culture and operation of the business is concerned. And in a metaphorical sense in respect of your own biological system. Read more of this post

Resilience:: foundation for a sustainable model


Resilience risk complexity uncertainty graphicOrganisational restructuring, talent shortages, and greater technology risks are some of the key transformation-driven risks for the rest of the year ahead, according to PricewaterhouseCoopers‘ latest Risk in Review report.

According to PwC ‘change’ is now happening among the more enlightened…but who are they, where are they and how the hell did the break-out from the thinking that has been a major contributory factor in the run-up to ‘financial meltdown’!

Businesses can use horizon scanning and early-warning systems to spot trends, and employ stress testing to identify key vulnerabilities. More flexible risk appetite statements, corporate-wide contingency planning and a risk-aware corporate culture that challenges conventional wisdom are all powerful tools that can help organizations better manage emerging risks.

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