Business & Risk Management:: redefining ‘steps to success’


English: This is a visual, organizational map ...

English: This is a visual, organizational map of complex systems broken into seven sub-groups. (Photo credit: Wikipedia)

You may fully understand the products and services that your business supplies, even: how it operates – it’s many complex processes; who it’s key personnel, suppliers and customers are; it’s finances; be ‘sensitised’ to the early signs of (ever-present) opportunities and threats in the marketplace and; be well practised in the application of the tools and techniques of management BUT, here is the bad news: ALL OF THAT MAY STILL NOT BE ENOUGH, particularly if underlying theories or organisational structure are sources of unidentified and (therefore) unmanaged risk!!!

I have written plenty on the subject in an effort to convey the message that each business is wasting valuable resources to treat the symptoms of what WE have created and keep adding to [unintended consequences] at an ever-increasing pace whilst failing to address the root cause.

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Practice without sound theory will not scale


Dave Snowden, “Practice without sound theory will not scale“. Simple.

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Haldane on banking: “No change is not an option…”


Andy Haldane addressing the – Parliamentary Commission on Banking Standards

The first line of defence has to be risk management within the firm. We have seen a significant scaling up in both the resourcing and the influence of the risk management function in banks over the last 4 or 5 years… There are very few, if any, global banks who can conduct effective, consolidated, across-the-whole-balance-sheet risk management. Many of their systems simply make that if not impossible then certainly unsure. There is still work to be done to put IT systems and risk management systems on a wholly different footing that have been in the past. The systems are not in a state of health that allow this holistic across the balance sheet aggregation of risk. Of all the shocking things that I have come across in the last 4 or 5 years, among the most shocking, was the inability of the biggest banks in the world to simply add up the numbers. The IT spend that has occurred has tended to be focused on business lines. It hasn’t allowed a joining up of data, core data, across the whole balance sheet. It is a pre-requisite to the essential building block of effective risk management. It does not exist at present in too many big firms”.

AH is very assured, knowledgeable and speaks with great clarity on some very complex issues. This is well worth watching. Just in case my own comment doesn’t make it through the approval process, here it is!

Andy Haldane’s "Systems Thinking" approach to resolving so many of the issues at, or as close as one can realistically get to, source is a welcome breath of fresh air. The only thing that HAS been lacking is the means to measure (and therefore) manage both complexity and resilience of individual firms i2o [inside to out]. Creating more regulation and adding more cost to TREAT SYMPTOMS makes no sense.

“Adding complexity to cope with complexity is a seriously flawed approach” McKinsey. http://wp.me/p16h8c-yU

Basel III: Why bother when the prequel was a flop: “…complexity breeds complexity, and is subject to diminishing returns. Eventually the costs of increased complexity exceed the benefits” Prof John Kay http://wp.me/p16h8c-yj

KNIGHT or NINJA?
Reducing "flexibility" through partitioning or "ring-fencing", when AGILITY is a prerequisite for every business in the Digital Age, could only make sense to career regulators, lawyers and politicians intent upon ignoring the “law of Requisite Variety”. The era of the Medieval Knight is long past and a "suit of armour" may mask but won’t change culture!!!

In the words of Dave Snowden "Practice without sound theory will not scale".

Acceptance of the inability to build mathematical models…to mislead all-and-sundry…and of (Knightian) Uncertainty should be the start of a cultural change that, with the ability to measure the inherent (but currently ‘hidden’) complexity risk, enables transparency – whilst protecting sensitive commercial information – and the process of (re)building both system and systemic resilience. Ninja warriors live by a strict code and act with great agility.

Even when the DNA is similar “we can’t fix today’s problems with yesterday’s tools” http://wp.me/p16h8c-18g

 

Duncan Watts [presentation]:: The Myth of Common Sense


Duncan Watts is a clever guy! Not just because he is well educated, which he undoubtedly is but because he has the ability to explain why “common sense” works in the appropriate domain(s) – simple, maybe even complicated – but is particularly dangerous in complex or chaotic domains. But, then again, that is what this definition tells us: “sound and prudent judgment based on a simple perception of the situation or facts“. But when I talk about these different domains you should not visualise this as “islands” or separate entities. Rather, as various “conditions” or “states” that can be found within a single complex [adaptive] system, its sub-systems and networks at any given time, as it performs the many inter-connected processes that underpin functionality.

Why is this relevant? Because “common sense” isn’t much use if you are dealing with a system so complex that you CANNOT understand its complexity, track causality or anticipate the unintended outcomes (or unintended consequences)! Where the smallest decisions can have enormous consequences and the smartest decisions can be counter-intuitive, how can they be validated when the crowd advocate “common sense”???

I urge you to watch the presentation (even read the book!) and, if this has whetted your appetite, you may also be interested in what Atul Gawande has to say about surgeons dealing with complexity, Tim Harford talking about Oil Rigs or Dave Snowden a kids party!

Social problems…must be viewed not as the subject of rhetorical debates, but as scientific problems, in the sense that some combination of theory, data, and experiment can provide useful insights beyond that which can be derived through intuition and experience alone.

Freakonomics » The Myth of Common Sense: Why The Social World Is Less Obvious Than It Seems.

Too often we are guilty of over-estimating our own knowledge and underestimating what appears familiar even though we know that appearances can be deceptive – some “creatures” are particularly adept at exploiting this knowledge – and how much we have learnt by looking deeper (into space) or more closely (DNA, bacteria). Living systems come in all shapes and sizes but their true nature and an understanding their “structure” cannot be ascertained without observation at a variety of scales.

Moral Warfare:: a fight that the “pure of purpose” can win


OODA

OODA (Photo credit: Wikipedia)

I gather that “The Art of War” by Sun Tzu has, once again, become a popular read. If you have read it, this may come as no great surprise as it is fair to say that, despite some “iffy” translations prior to 1910, it has stood the test of time.

But, since beheading people to establish one’s authority is frowned-upon in these politically correct times(!?), I would recommend seeking out a latter-day “master strategist” by the name of John Boyd. You may have heard talk of AGILE BUSINESS [the embedded link is for anyone in insurance] and wondered “what the hell does that mean” or dismissed it as yet another creation of fee-hungry management or IT consultants!

But hold your horses…stick around and you might learn something that could serve you and your business VERY well indeed.