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.

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Why bother with systems thinking?:: presumably because you want to understand!


Team interactionI absolutely INSIST that you read this excellent 3 part series on ‘Systems Thinking’ (ST).

I came to ST along a path from insurance risk, to complexity and resilience but it made so much sense because, well, that is the way my brain is wired! When I was younger I didn’t buy in to the conventional Business Management books because they just didn’t feel right but ST did and, although it can, as John says, make you feel like you are going crazy! However, when the message is spelt out in such a readable manner I begin to see where I (and others) have been going wrong in our efforts to communicate the need for and benefits of change.

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From quantum complexity to monied tossers


Probability and Measure

Probability and Measure (Photo credit: John-Morgan)

I am not expert (in anything!) but, unless I am very much mistaken, these scientists are striving for the simplicity on the other side of complexity that Einstein craved.

When confronted with a complicated system, scientists typically strive to identify underlying simplicity which is then articulated as natural laws and fundamental principles. However, complex systems often seem immune to this approach, making it difficult to extract underlying principles.

Simplicity and quantum complexity.

I particularly like the reference to “these systems have memory and are predictable to some extent; they are more complex than a coin toss”.

Which leads me, nicely, on to a recent paper by Nassim Taleb! “Why We Don’t Know What We Talk About When We Talk About Probability”

Taleb is one of the most well known and widely published, critics of the dangerously “naive” practice of applying raw mathematical probabilities [applied to individual or independent events e.g. the coin toss or spin of a roulette wheel] to the, serious and very real, world of finance and insurance*: where it is not ignorance of the subject that is the problem, so much as the blatant disregard for the medium and long term impact upon corporate profitability and social resilience.

A manifestation of the unacceptable face of “Irresponsible Capitalism”

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Video: Business lessons from quantum theory!!!


At School I dropped science subjects in favour of the language of a fallen Empire (Rome) and Economics, so I didn’t have too much cause to think “things scientific” let alone Quantum Theory!

But, my journey into Complexity theory led me to broaden my reading (some may even call it research!) into System, Information and Chaos Theories. As well as a bit of Biology, Physics and Maths. I WOULD NEVE HAVE BELIEVED THAT IN A THOUSAND YEARS!!! Especially as the intention, when establishing Ontonix UK, was to identify how best our Quantitative Complexity Management solutions could be deployed to reduce risk, primarily, in insurance and the wider Financial sector!

The more closely I looked at subjects, that were relatively unknown to me, the greater my appreciation of those matters AND, through that, the more I understood (and questioned)  things that were already known to me.

However, apart from my new found appetite for science, what startled me most was the realisation that, much of what has become “accepted practice” in the business environment is based upon (wrong) assumptions and the attitude that “there is little that we need to learn about business and risk management”…especially from science!

Such is the culture of an industry with little doubt about its own infallibility!!!!

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UPDATED: Reducing complexity – should finance directors be leading the way?


Since writing this article I have, finally, succeeded in obtaining a copy of the GSI 2010 report. It can be found here. It is certainly worth a read as, like so many reports on the subject (a range of Consultancy reports can be found here), it throws more light upon a subject that can only bring benefit from improved understanding.

HOWEVER, worryingly, the common denominator is not the definition or approach but the lack of an objective, quantitative, solution. Unsurprisingly, this is NOT something lacking in the Ontonix proposition.

That complexity is a source of risk has been established beyond any doubt. As is the fact that, conventional risk management does not possess the tools to distinguish cause from effect in complex business systems.  So, identifying sources and mapping non-linear interactions – that, otherwise remain “hidden” within the data – offers a unique insight to the “observer”, enabling the business owner to:

  • gain “crisis anticipation” iro endogenous events
  • reduce risk exposure at source
  • reduce uncertainty
  • improve operational effectiveness
  • improve profitability
  • build-in redundancy
  • maintain resilience

…and create a more sustainable enterprise – economy – world.

“In a complex system, learning how all the pieces—constant and variable—interact gives a depth of understanding that averts catastrophe. That is what we mean by humancentred design—understanding the interfaces among technology, people, communities, governments, and nature. This is what makes complexity manageable”

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