Murphy’s Laws & Business Risk Management


The origin of the well known Murphy’s Laws may be traced to Edwards Air Force Base in 1949. A few of the most popular of these laws:

      • If anything can go wrong, it will
  • If there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong
  • If you perceive that there are four possible ways in which something can go wrong, and circumvent these, then a fifth way, unprepared for, will promptly develop
  • Left to themselves, things tend to go from bad to worse
  • Everything goes wrong all at once.
  • Nothing ever gets built on schedule or within budget.
  • Nothing is as easy as it looks.
  • Everything takes longer than you think.
  • It is simple to make something complex, and complex to make it simple.

Murphy’s Laws may sound funny but most of us will agree that they correctly reflect the reality more than simple anecdotes. Because of this, one may see behind Murphy’s Laws the hand of Nature. Consequently, we may attempt to come up with a “scientific interpretation” of these laws. There are thousands of Murphy’s Laws and we will not get into the details of any single one of them. However, we can state that they essentially point in the following direction:

Things tend to become more complex and not simpler.

In other words, Murphy’s Laws state that, when given a chance, complexity will go up rather than go down.  In effect, when we say that a “situation is bad” or has “gotten worse” we often imply that it has become more complex. Highly complex situations are difficult to assess and to manage and frequently spawn unexpected behaviour and this is why humans prefer to avoid them. In other words, Murphy’s Laws are saying just that.

via Ontonix – Complex Systems Management, Business Risk Management.

Understanding Complexity will make sense of so much that is evaporating..


…before your very eyes!

As I have declared before I am not a person normally given to viewing a glass as half empty but I am scared (and appalled) by the number of people who see the level of liquid in their glass, despite the rapidly melting ice* and vapour, as acceptable, simply  because the people who have, historically, managed the ambient temperature tell you that the thermostat isn’t broken. It’s just awaiting repair and should be sorted “quite soon”!

Ask about how, when or at what cost and you will find that a satisfactory answer is difficult to come by. Cast your mind back to other “maintenance issues” and you may see a pattern emerging. You may realise that the quality of management has deteriorated whilst their costs have risen. They may have been greedy and taken on too many maintenance and repair contracts but still enjoy the benefit of your trust.

Even when someone tells you and provides documentary evidence that they have been consistently  failing in their duties, lying to you (and others with whom they have contracts), falsifying records and much, much worse.

Look more closely and you will see that the liquid is evaporating. Lots of tiny “bubbles” rising, popping and cascading droplets beyond the rim of the glass from which you, your family, community, employees or co-workers have to drink to sustain yourselves.

At what point do YOU say enough is enough and take steps to ensure that you and yours aren’t deprived of the life-giving liquid???

If this little analogy doesn’t make much sense to you, then, you may be beyond salvation and X Factor may satisfy your thirst…for the time being!

If you want the truth the “system” is screwed. Your tolerance and “maintenance fees” are the only reality. Read more of this post

What’s next for global banks – Is it a tent and some dodgy headgear?


Here is some commentary from McKinsey on a topic that is “dear to our hearts”…of course dear may be the most appropriate word (depending upon your interpretation of the the word) and how you carry your wallet!

What has happened to the Global economy in recent times is a matter of record and a great number of, apparently, robust organisations and reputations were laid waste. There can be little doubt about the excessive risk taking and greed but has everyone forgotten what provided a “platform” for this culture?

What gave the industry license for such recklessness, made them so “cock sure” of themselves, dazzled, beguiled and blinded Politicians, Regulators and investors???

The Crystal Ball: An essential tool of Consultants & QuantsThat’s right it was blind faith in financial models that were flawed but given kudos (at great expense) by rating agencies whose reliability, if not objectivity (or worse) must warrant greater scrutiny. SO IMAGINE MY SURPRISE WHEN I READ THIS:

To arrive at a perspective on these fundamental changes, we turned to scenarios that the McKinsey Global Institute (MGI) developed to help model uncertainty about economic recovery and growth. We adapted these scenarios to include the particular forces that most influence banking returns: inflation and the shape of the yield curve, as well as uncertainties about state intervention, including new capital requirements, consumer protection measures, new rules on risk management, pay caps, and the extension of regulation to the “shadow” banking system.

“Uncertainty” is THE key word and there is even reference to markets remaining “severely dysfunctional” but it STILL hasn’t prevented this exercise that can only be down to job creation. You can read the full article here.

You could decide to check your Horoscope OR pick a horse for the Grand National – here is a tip: last years result nor an individual horse’s performance in other races are not necessarily a guide to this years race. But I guess you already knew that.

BUT, if you are really stuck for something to read get your head around the fact that irrespective of the intellect, experience and technology at our disposal we/they cannot predict the future even in times of relative stability. What we know about the past, from our experience, is no longer adequate for an inter-connected world.

If you are interested enough to read to this point you may just be keen to explore some thoughts on why and, more importantly, how we need to prepare for the future you may be interested in this previous post. If you want yet more please drop me an email: david@ontonix.com

Ten Principles for a “Black Swan” Robust World


Assuming that you have more than a passing interest in how and why our economy got to where it is and you don’t get your financial commentary, from the “red tops” you may have heard of Nassim Nicholas Taleb author of “The Black Swan”. He is, amongst other things, brilliant (if controversial) Distinguished Professor of Risk Engineering, NYU .

Like or loathe his views he is not afraid to challenge the, apparent, institutional blind faith in “conventional wisdom” and put his money where his mouth is…to very good effect!

:::::private:var:folders:ot:otLBQ3WIFCiulYBiOXbuA++++TI:-Tmp-:com.apple.mail.drag-T0x7102f0.tmp.m2hfuj:IMG_1097.jpg

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.

2. No socialisation of losses and privatisation of gains.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.

5. Counter-balance complexity with simplicity.

6. Do not give children sticks of dynamite, even if they come with a warning.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.

8. Do not give an addict more drugs if he has withdrawal pains.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

10. Make an omelette with the broken eggs.

So why do I feel the need to laud someone that I have never met…but would very much like to, whose most famous literary work I have yet to read(!) – although I have read several of his papers – and who operates on an entirely different intellectual {and financial} plain to myself?

Well, because what he says makes so much sense! He is unimpressed by [nae dismissive of] the closed-shop greed mentality that pervades the global financial sector.

I have read much of his work and have been struck by the frequency with which he uses terms, with which I have become increasingly familiar during my (unintended) extended sabbatical.

In a forthcoming blog I will explain why these terms have become SO important to me and the new venture I will shortly launch. But this isn’t just about me, my new business, or, indeed, NN Taleb. As you look at these words and, hopefully, explore some of Prof Taleb’s writings please consider some of the books, articles and news items you will have, inevitably, seen on the subject of banking crisis – risk management failure(s) – credit crunch – recession, etc.

I’m sure you get the picture!

MODEL – RISK – ROBUST – COMPLEXITY – SYSTEMIC – TRANSPARENCY – RATING – SUSTAINABILITY – PROFITABILITY – INTERDEPENDENCE – GOVERNANCE – CREDIT – PROBABILITY – RANDOM(NESS) – ENTROPY – POWER LAW – ADAPTABILITY – OPACITY – FRAGILITY – REGULATION – CRITICALITY – FINANCE – BANKING – INSURANCE – PROTECTION – QUANTITIVE – PRICE – RETURN – INCENTIVE – RESILIENCE I’m sure there are some really obvious omissions but I am trying to wean myself off the compulsion to try to make “perfect” and complete every blog, piece of research, letter, presentation…shit I’m doing it again!

Warning of the global banking crisis

In 2007, in The Black Swan

“Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought…”

PLEASE DON’T GET TOO HUNG UP ON DAVID CAMERON’S “INSIGHT”!!!