UPDATED:: Quake in Japan illustrated fragility of “Global Supply Chain” & flaws in conventional “wisdom”

Business continuity planning life cycle

Business continuity planning life cycle (Photo credit: Wikipedia)

The case for a Company to maintain a current and comprehensive Business Continuity Plan does not come much better than this example from HP!

Modern global supply chains, experts say, mirror complex biological systems like the human body in many ways. They can be remarkably resilient and self-healing, yet at times quite vulnerable to some specific, seemingly small weakness — as if a tiny tear in a crucial artery were to cause someone to suffer heart failure.

via Quake in Japan Broke a Link in Global Supply Chain – NYTimes.com

Of course EVERYONE hopes that they never have to contend with what the Japanese nation have had to live through. But, at a time in the history of our planet, when the impact of events on the other side of the planet have truly global repercussions, “HOPE” isn’t much of a strategy! 

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Insurance:: “Future risk” and technology [CII report]


image30 yeas ago (and for much of the intervening period!) I never thought I would utter the words, “what a great report from CII” but there you are, I’ve done it now. I’m the “sad” insurance man I never wanted to be.

Well, not quite, because I am very much an outsider as far as the insurance industry stands right now. The main reason being that too many people on the inside don’t want to hear, like or understand what I have to say about the massive problems that the industry is adding to day, after day, after…

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Nassim Taleb on “antifragility”:: non-sissy uncertainty

English: Escultura dedicada a la Entropía en l...

Taleb rarely disappoints. And here is a “new” word that most of us may understand better as resilience(ish)! For more reading on the subject I would recommend this piece: Antifragility — or— The Property Of Disorder-Loving Systems but I’m sure you will find the following of interest too.

Here’s a quote from the prologue of Antifragility, which should give you a sense of Taleb’s substance and style: “This book is about how to domesticate, even dominate, even conquer, the impenetrable, the unseen, the non-understood, the opaque, the perplexing, and the inexplicable. Wind extinguishes a candle and energizes fire. Likewise with randomness: you want to use it, not hide from it. You want to be the fire and wish for the wind. This summarizes my non-sissy attitude toward randomness and uncertainty.”

via Non-Sissy Uncertainty: Why I Inflict Nassim “Black Swan” Taleb on My Students | Cross-Check, Scientific American Blog Network.

UK Gov. report:: high impact, low probability events

With thanks to Dave Marsay for his insightful analysis and comments

Risks arise in the world, so our view of the world affects our view of risks. If a risk is ‘really’ such a low probability then it seems reasonable not to let it dictate our lives. The real risk is from risks that are under-appreciated. For example, natural risks are often thought of as natural, but what is of concern is not so much the once in a century event that happens about once every hundred years but the one that happens more often. A natural disaster is possibly just bad luck, but more often its ‘likelihood’ or impact had been underestimated. Part of the problem is risk management itself. After a flood the risk of subsequent flooding is appreciated and drains are kept clear, but after a period without flood . we ’learn’ that floods are unlikely, the perception of risk reduces and drains can remain blocked. The risk of flooding increases. More generally, we manage our lives according to our perception of risk, thus there is a reflexive relationship: a risk is only a serious risk if it is under-appreciated. Thus the inherently challenging risks are those that are invisible, obscure, complex, confused or otherwise outside our management approach. Perhaps we should rise to the challenge?image

“With sufficient knowledge and informed judgement uncertainty can be characterised statistically. It follows that strategic surprises arise from lack of knowledge or the inability to perceive the consequences of what is known”

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The view from “Olympus” and “Why did RBS fail?” v “Roads to Ruin”

The long anticipated report…for what it is worth [in terms of the difference it may make!] is out and, whilst I haven’t read it through fully I was struck by the similarities between this passage and the content of the recent “Roads to Ruin” report into dangerous risk management failure/limitations (delete as required):

FSA on RBS Roads to Ruin
It is difficult, from the evidence now available, to be certain how aspects of RBS’s
management, governance and culture affected the quality of its decision-making,
but the Review Team’s analysis prompts the following questions:• Whether the Board’s mode of operation, including challenge to the executive, was as effective as its composition and formal processes would suggest.

• Whether the CEO’s management style discouraged robust and effective challenge.

• Whether RBS was overly focused on revenue, profit and earnings per share rather than on capital, liquidity and asset quality, and whether the Board designed a CEO remuneration package which made it rational to focus on the former.

• Whether RBS’s Board received adequate information to consider the risks associated with strategy proposals, and whether it was sufficiently disciplined in questioning and challenging what was presented to it.

• Whether risk management information enabled the Board adequately to monitor and mitigate the aggregation of risks across the group, and whether it was sufficiently forward-looking to give early warning of emerging risks.

…weaknesses were found to arise from seven key risk areas that are potentially inherent in all organisations and that can pose an existential threat to any firm, however substantial, that fails to recognise and manage them. These risk areas are beyond the scope of insurance and mainly beyond the reach of traditional risk analysis and management techniques as they have evolved so far. In our view, they should be drawn into the risk management process. They are as follows:

A. Board skill and NED control risks – limitations on board competence and the ability of the Non-Executive Directors (NEDs) effectively to monitor and, if necessary, control the executives.

B. Board risk blindness – the failure of boards to engage with important risks, including risks to reputation and ‘licence to operate’, to the same degree that they engage with reward and opportunity.

C. Poor leadership on ethos and culture

D. Defective communication – risks arising from the defective flow of important information within the organisation, including to board-equivalent levels.

E. Risks arising from excessive complexity.

F. Risks arising from inappropriate incentives – whether explicit or implicit.

G. Risk ‘Glass Ceilings’ – arising from the inability of risk management and internal audit teams to report on risks originating from higher levels of their organisation’s hierarchy.

Now, someone please try to persuade me that the root of the problem isn’t fed by the bounteous supply of Corporate Read more of this post