Beware the Risk Bureaucrats

One of the notable things about Risk Management literature is the variety of ways authors have chosen to define ‘risk’. As it happens, here’s a likely version at the front of the class, waving its hand franticly in the air and fairly wetting itself to be chosen first:

the effect of uncertainty on objectives

Hmm. Definitions don’t usually aim to be opaque, but that effort from the ISO Guide 73 is scoring high on the ‘not shedding any light’ index.

Never mind, here’s another, this time from the Business Dictionary:

A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action

Well, there’s certainly a bit more to that one. And wouldn’t you know it, here’s a third:  

The product of the chance that a specified undesired event will occur and the severity of the consequences of the event (OGP)

Ouch.

These examples all have something in common: they’re all missing a bit that says ‘that we can think of’.

That’s the thing about risks: they are ideas, speculation, conjecture, mental constructs. A risk is something we think could transpire at some future point and it follows that, if risks are the products of our minds, then to understand our capacity to think of risks becomes really important to the success of Risk Management.

So it’s strange to note that, when it comes to putting Risk Management into practice, the psychological dimension is frequently overlooked. All too often a risk bureaucracy is implemented, awash with procedures, matrices, criteria and taxonomies while failing to prioritise an appreciation of how people think and why they hold a particular set of views.

Understanding the risk-taking psychology at the key decision-making points in the organisation would seem to be a good thing to do, but that would require a shift in tone for Risk Management in many firms and a challenge for the risk bureaucrats.

The Risk Of More

Re-reading my post of 6 Jan this year (‘Too Much of a Good Thing’) it dawns on me that what I’m talking about is a type of risk – the risk of more.

A lot of risk thinking has to do with having too little or not having things the way you want them (for example, when things go wrong). But in an affluent society having too much can be risky, by clouding the simple option and stretching decision-making capabilities to the max.

Right. Nobody move. I hereby lay claim to this idea and phrase ‘The Risk of More’. Since it’s just occurred to me I have, as yet, done precisely zero research to find out if anyone got there before me. If not, expect a book in 2015.

Liz and Julie go to the Bank

‘One has overspent’ screamed the headline from i, the Independent’s ‘quality tabloid’, thereby putting a flame to the ‘quality’ bit of that Unique Selling Point.

This was the revelation that the royal household hasn’t been too good at balancing its budget, primarily in relation to the cost of maintaining so many Royal garrets up and down the country.

The story itself is piddly – a waste of £2m, while significant to Joe Q Taxpayer, is smaller than the smallest beer at the institutional/corporate/national level. Government departments waste this sort of money through over generous allocation of toilet paper every hour (probably). And anyway, someone won 50 times that much on the Euromillions last year, so live with it.

No, the underlying topic of how this lands in the public sphere is much more interesting. The i’s headline is telling: this mundane tale of some lackey failing to do his sums is turned into a SHOCK! expose that plays (by design?) to a well worn meme: our lords and masters are idiots and/or crooks.

This massaging of events is the harsh reality of what risk people call reputation risk. The term is often watered down to a vague narrative, such as ‘negative media exposure’, which doesn’t really do justice to the toxicity of the issue.

The truth is, I reckon HRH doesn’t really have anything to worry about – her public standing is almost unassailable. Probably second only to Julie Walters who can afford to appear in The Harry Hill Movie without so much as a smudge on her credibility. If you want to find a entity that’s genuinely vulnerable to reputation risk look no further than the Royal Bank of Scotland.

RBS was established in 1727 and spent nearly three centuries building a cachet that one commentator characterised as ‘Corporate Deity’ before watching it plummet to ‘Lower Than Whale Shit’ in a few short years.

The latest press grumblings have to do with executive bonuses – as expected. Such stories at least have the merit of actually being about the organisation. Other reporting can’t claim such distinction: the recent TSB/Lloyds/Bank of Scotland IT outage invited comparison with RBS (it had nothing to do with the firm). Even more bizarrely, a recent piece discussing historical perspectives of the First World war saw fit to gauge the quality of military command with the standard of management in RBS.

When your reputation amounts to being a yardstick for cock-up you know you’ve got a problem. How do you bounce back from that? Time and hard works, perhaps – but don’t be too sure. Just ask British Rail which once, many years ago, claimed ‘leaves on the line’ had been sufficient to disrupt train services. That particular piece of communications genius has become a sort of national shorthand for incompetence and even pops up in the current Audi advert.

For their part, I think Risk people need to do more to explain reputation risk – more helpfully thought of as a consequence of operational risk – to better prepare the executive classes for the true impact of their decisions. It’s no exaggeration to say that, in some cases, hundreds of years of work could be at stake.

Too Much of a Good Thing

Choice – what’s not to like?

Choice – and plenty of it – is what progress looks like. Or so we’re told. The engine for delivering choice is, of course, the free market where, the theory tells us, the exercising of choice will allow the cream to rise to the top, leaving the optimum result. Happiness and contentment follow. Job done. 

Nice idea. However, I wonder if having lots of this choice thingy is all it’s cracked up to be. What happens when the sheer number of choices becomes bewildering, when there is simply too much to choose from? Ever been to a toy shop with kids itching to spend their allowance? Choosing can become frustrating and discontentment can follow from exposure to all the stuff they can’t have. 

The same can be said for television broadcasting (so many channels – which one to watch??), household technologies, clothing, insert the commodity of your choice (there it is again, see?). 

And what happens when the choice is about something that’s long term, complex and important, such as financial products? The theory says that, by the almighty power of the market, poorly designed, badly priced products will fail, leaving us with top notch, well designed and fairly priced pensions, savings and investment vehicles.

Take a look around. Any new mis-selling scandals? Be patient, there’s bound to be one along in a minute. 

Of course, we might argue that the market’s ‘invisible hand’ is still at work. Perhaps, but if so, are we to accept that, in the interim, countless thousands can expect to be disadvantaged as the market balances itself out? Ouch.

Musician Peter Gabriel makes the observation that the worst thing you can give an artist is lots of options: narrowing choices – for example, by limiting materials or time – forces creative thinking, driving new ways of working and unforeseen solutions. There’s also the often overlooked satisfaction that comes from working it out for yourself.

It’s a compelling perspective and one that’s lost on many people used to living and working in the land of plenty: too much of a good thing can be a real problem. In such an environment making choices requires discipline, the mental rigour to weigh a rational analysis of options against gut feel and make a clear-headed assessment of wants and needs. 

Making choices becomes increasingly difficult as the number of options increases and yet, making good choices underpins contentment and happiness – and it’s good for business.  In affluent societies learning to make choices should be seen as survival training.

The 30 Second Rule

Does anyone in the Risk field enjoy churning out huge risk reports, running to many (dozens, hundreds) of pages, so convoluted that much of it goes straight to the shredders? Me neither. I’d rather lick wasps.

Happens a lot though. I’ve lost count of the number of times I’ve seen a report so ram-packed full of 8-point information it’s almost impossible to work out what the hell it’s saying.

And yet, this is the key element of the whole risk cycle, the bit where the risk community gets air time at the Palace, the ‘value-add’.

So, my proposal: the 30 Second Rule. It’s simple: your report is a success if a non-technical reader can understand the key issue, its magnitude and what should be, or is being, done about it, within 30 seconds of picking up the paper. If the reader is still in the dark on the 31st second, the report fails.

That’s all we have to do to avoid licking wasps.  

 

 

 

Blah!

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Some people I know are very excited about all this blogging, Facebooking, txting, Twittering, online forums – this explosion of everyday media. Some people think it has lead to increased democracy. 

Call me an old grumper, but I’m just not so sure that, for the majority, media changes have actually delivered anything more meaningful than a handy shopping experience, some maps and a few naughty pictures. 

The means of delivery has changed, certainly. In the past if you wanted to get on your soapbox you had to, well, get a soapbox. And get on it. And shout. Or write to the papers.

Today we have more channels – alternatives to soapboxes – and the means to broadcast without actually straining your throat. 

So, more noise. Any more signal? And, if there is, any positive impact on democracy?

Weeeeell….possibly not. Two graphs. The first shows the sharp increase in net usage we all know and love, the second suggests no change in the democratic landscape over a similar period (all UK data).

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 Source: Democracy Barometer.

Conclusion: lots more noise – less signal.

Shame.