Risk or Fear?

How much risk is really fear dressed in fancy clothes?

It’s easy to list 10 things that could go wrong for every one that might go stunningly right. Overwhelmed by negatives, we may fall into the default “no action” by studying more and more options or allowing other priorities to grab our attention. Are these negatives risks or ways of expressing our fears?

Risk is about uncertainty. How likely is it that we’ll achieve our goal and what happens if we don’t? What are the specific threats and how can we overcome them? These are questions we can answer, leading to actions we can take.

Fears, visceral reactions to future possibilities, might be reactions to threats or general concerns about making changes. If heeded, they can freeze our ability to think and act.

Many of us work to protect what we have, rather than actively seek what we want – thinking there is safety in the status quo. Standing still, though, is really not an option because stillness is an illusion. Movement and change are our natural state – the attempt to avoid them is fraught with risk to the well-being of individuals and organizations.

Shining the light on our perceptions of risk can reveal  pathways for achieving our goals. Answering the key questions below sets the stage for success:

  • What do we want to achieve? Does this reflect our current circumstances?  How we can reconcile any conflicting priorities?
  • What do we need to know to make good decisions about how to proceed? What relevant information can we access quickly? How can we include a variety of data and opinions?
  • How can we measure progress and any changes in risk … then make any necessary course corrections?

Don’t be fooled by fears legitimized as risks. Knowledge can neutralize fears, reduce risk and uncover opportunities so you can move boldly toward your goal.

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Who knows more about risk?

The Wisdom of the CrowdsIn important matters of uncertainty involving predictions we need to hear from a diverse group of people that have different perspectives, and perhaps a stake in the decision that causes them to think before offering their views.

Collectively, the diverse group is smarter than individuals. This is the core message of The Wisdom of the Crowds by James Surowiecki.

Surowiecki provides a framework with examples of when and how the knowledge of the crowd can impact decisions positively.

This idea applies well to regulation. Why? Because regulators are generally a step or two removed from the uncertainties they need to know about. First-hand knowledge about these risks reside with the regulated parties.

As well, the sources of uncertainty in most jurisdictions are dispersed and mostly invisible until they are brought to the attention of the regulator. The collective knowledge of constituents (regulatees and individuals who are affected by what regulatees do) is far greater than the regulator. Effective new methods for capturing this knowledge will improve regulatory oversight.

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Risk defines who we are

A brain section are from  René Descartes.Cogito ergo sum. (I think, therefore I am) This famous quotation and the drawing of a brain section are from René Descartes.

RISK DEFINES WHO WE ARE

If you have an image in your mind that risk management is a negative subject, always focused on bad things, you need to read Mumsipus Revisited by Felix Kloman and experience the humanity of the man who believes that “taking risk is the defining element of human existence.”

Kloman’s update on Descartes’ famous quotation is “perilitor ergo sum,” I risk, therefore I am. Life with no risk would be sterile and dull. It’s a cliché to say that risk and reward go hand in hand. It’s ironic, then, that the common perception about risk management omits the positive aspect to focus only on the negative. Kloman argues persuasively that risk management addresses both situations.

Mumsimus Revisited The essays in this book are from a 15 -year period since 1974 during which Kloman was editor of the newsletter, Risk Management Reports. You can order a copy from Seawrack Press.
The essays offer many thoughtful insights about the nature of risk and the discipline that has grown up around it.
The essays are organized by themes (chapters)– a few of which are noted here:

  • History of risk management
  • Issues in risk management (including a discussion of broad public policy issues)
  • Risk communication: difficulties in this area and why it’s so important
  • Insurance (Kloman is a critic of the industry that provides a tool for “sharing risk.” His views may be of interest to insurance regulators, and other regulators who oversee specific-purpose “captive” insurance plans)
  • Catastrophes, the ultimate challenge for risk managers and regulators.

Kloman’s authority as a commentator stems from the perspective, independence, clarity of thought and humanity he brings to every essay. He’s been an practitioner and respected commentator throughout the development of the risk management profession: it’s a young profession; He reads widely and shares his sources; He loves good writing and his writing reflects the obvious care that he takes; And, his passion for risk management reflects his values and conviction that this discipline can improve outcomes for society.
It’s worth reading just to discover what he considers to be valuable. In the risk literature field, Peter Berstein’s book Against the Gods: The Remarkable Story of Risk is but one example.

The title of the book, Mumpsimus Revisited, makes reference to the story of a monk whose erroneous use of latin in the Mass was of little matter to him.The story is a reminder that we need to revisit our assumptions, especially as they relate to risk.

Veiled truths

There’s a review in the November 8, 2007 New York Review of Books of a book by the Turkish Nobel laureate Oran Pamuk, Other Colors: Essays and a Story. The reviewer quotes from an essay by Pamuk:

It is by reading novels, stories, and myths that we come to understand the ideas that govern the world in which we live; it is fiction that gives us access to the truths kept veiled by our families, our schools, and our society; it is the art of the novel that allows us to ask who we really are.

In another section, the reviewer again quotes Pamuk, “an imaginative novelist … can look directly into the center of things the way that only children can.” The child’s view is unconditioned by adults who may not see the obvious, or if they see it may have good reasons for keeping quiet about it. You’ll recall in the story of the Emperor’s Clothes that it was a child that revealed the veiled truth about the not so veiled Emperor, that he was buck naked. Continue reading

The Black Swan, by Nassim Nicholas Taleb

The Black Swan, by Nassim Nicholas Taleb

This is a book that offers the opportunity of an education. There are so many interesting tangents — they’re a bit like hyper-links that’ll take you into another world, the world of someone who has thought deeply and has experienced a life that’s anything but average. And to be sure this book is not about what’s average.

Nassim Nicholas Taleb argues that history is dominated not by the predictable but by the highly improbable. Before Europeans discovered the black swan in Australia, the world in the northern hemisphere believed there were only white swans. In fact, the expression “it’s a black swan” was a way to make a point about something being impossible. However, improbable and consequential events do exist outside our normal spheres of reference. Understanding the kind of impact these events can have on your plans, for good or bad, and being prepared is the central argument of this book. Taleb offers good advice. Continue reading

Faster, more accurate decisions

DNA model
Many years ago we would never have thought that there is code that determines who we are. Now we understand that DNA is the ultimate example of structured information.
Thin slices of related information paint a composite picture

The way the human the brain serves up the right information in a split second is truly inspiring. How do you explain now retired Magic Johnson’s court sense and ability to float through a seemingly impossible line of guards and then sink a basket making it look like poetry in motion? How do you account for Wayne Gretzky’s renowned ability to anticipate where the puck will be at a critical moment?

Malcolm Gladwell in Blink uses examples like these to illustrate the brain’s capability to process thin slices of related information and make fast and accurate decisions. “Blink” is Gladwell’s metaphor for split second decision making.

This capability to thin slice accurately is based an acute understanding of what’s important and what’s not. The composite picture that the thin slice represents may include seemingly trivial information and exclude other information that just doesn’t fit. It’s the right bits of information and relationships between them that matters.

The concept applied to regulatory organizations, and in particular to the development of risk profiles, can be very effective. Continue reading

Do we need to autheticate the source or what the source reports?

I spoke at a conference in Ottawa today that was focused on the topic of stakeholder consultation. An observation from one of the participants in one of the sessions raised the question about how to authenticate and validate comments from participants received via an online forum, wiki, or blog. If the comments are to be used to inform policy, the need to know the author of a comment is clearly important. If one individual or group were able to represent themselves as many individuals or groups, the consultation process is clearly suspect.
This brings up the question of the purpose of the consultation. In risk management, we need to consult to understand matters that would otherwise be invisible, to see and understand more clearly what and how certain unexpected events could happen that will advance or retard goals. The authenticity of the individual who helps you understand or see more clearly may not be important. However, the truth of what they tell you is. So we need to validate the information. It’s less likely that we need to validate the reporter. Indeed, knowing less about the reporter means that it is less likely that we will be influenced by the things that shouldn’t influence us, but easily can. For more on this point about risk and perception read this blog about Joshua Bell.