The FACTS that lie beyond conventional risk horizon (in graphics)

You must not become complacent with a pattern that works today because new patterns will be needed in the very near future

Beyond Risk Management:: What Are the Alternatives?

There really isn’t much point in me adding to this blog from Ontonix. Maybe one of these days the financial sector will overcome its “prediction addiction”. Maybe!!?

Risk STILL isn’t optional: nor is the truth!

When facing large doses of uncertainty risk model-based methods of managing uncertainty don’t work. One thing is to manage an assembly line producing, for example, computer chips, another is to run a company in a globalized, turbulent, chaotic, non-stationary and shock-punctuated economy. Some things can be accomplished via mathematical modelling some cannot. Sure, you can model anything. Nobody can stop you from dreaming up an equation based on which you invest your own savings or those of other individuals. That is not the point. The point is that some models are unable to produce results that would be good enough to justify the effort of building them. Why is that? Those who have a few decades of experience building math models know that:

Risk STILL isn’t optional: nor is the truth!

Where are the “risk leaders”?

Instead of FS compounding the problems we should be utilising our expertise and resources to establish a means of “repaying” society, by promoting, supporting and investing in building community resilience.

EVERY project, process, task, operation being undertaken by an organisation is reliant upon varying degrees of INTER-CONNECTED process that (often unseen) underpins function. Each contains some degree of risk.

The more complex the process or product the greater the exposure. Risk does not ‘run parallel’ to function, it is inherent to it and, as such, RM cannot be viewed as an option or add-on! To me this, scarily common and naive perspective serves to reinforce the need for a paradigm shift in Corporate culture.

I have revisited this old article for a couple of reasons. Firstly, (even though I say so myself) I thought it rather good! Secondly, I am seriously concerned that, where there should be “thought leadership”, there are, instead, clear signs that in some quarters a, subjective, consultancy-led approach is preferred to a rigorous, quantitative, analysis of business exposures!

This despite IRM, in a paper issued last year [Risk Appetite & Tolerance], advocating a more quantitative approach. In their accompanying webinar they offered a timeous reminder of Board level responsibilities:

Differentiating risk and uncertainty [infographic]: : YOUR feedback required

I have sat on this for…months because I:

• cannot make my mind up how happy I am with it,so
• I have accepted it is best to view it as a collaborative work in progress
• wasn’t entirely sure what I was going to do with it or how best to share it
• am frustrated that people in the “risk business” are unwilling to engage in informed discussion about:
  • business – networks – markets as Complex Systems
  • identified RM failings in
    • conventional Risk/Project Management – Corporate/banking/insurance
    • subjective Risk assessment
    • Risk rating
• am fed up with people, who should know better:
  • being unable to differentiate between risk and uncertainty, or
  • confusing the two
  • failing to recognise the serious implications of treating uncertainty with risk management tools/techniques and
  • making, dangerously naive, assumptions e.g.

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”