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NEW STRATEGIES IN RISK MANAGEMENT:
The risks are shifting . . . .

By Chauncey Bell and Gerald Adams
Contributed by VISION Consulting Inc.

September 11th, 2001 changed forever how we view risk and how we respond to it. When previously unpredictable events are more likely to occur, then the value of traditional preparations and predictions declines, and the value of our capacity to respond increases. Fire prevention, while still important, becomes less important, relatively, than fire fighting, for example.

Many businesses use the phrase "fire fighting" to mean nothing more than the simple shift from a mood of tranquil everyday action to one of urgent action. Many organizations are proud of their 'skill' at this shift: "We are good," we hear frequently, "at fire-fighting." Too often, this means, "We are good at energetically running around attempting to do something on the spur of the moment, without any advance preparation or thinking about something we didn't anticipate."

Dealing with Emergencies

This is more or less the opposite of what modern communities do to prepare themselves to fight fires and deal with emergencies. Mayor Giuliani's New York, while never before confronted with airplanes crashing into the World Trade Center, had been preparing for a great variety of large-scale emergencies for many years.

People serious about 'fighting fires' prepare resources, people, infrastructures, signaling systems and, most important, unbreakable communications systems and protocols. The object is to have a trained, prepared, rested, practiced and properly equipped team ready to work systematically on the job of avoiding loss of value, life and property when unexpected emergencies and events arise.

Budgets for IT and financial security programs are growing steeply. At the same time, corporations spend …" about 80% of their security dollars to protect against outside threats when in fact 80% of all attacks come from the inside."* When we look closely we find the risk management strategies of our organizations full of this kind of inconsistency.

Eliminating Risk

Frequently, for example, technology designers make the mistake of attempting to have the technology eliminate the risk. It cannot. Technology can provide breathing space and time to assess an emerging risk-turning-into-a-catastrophe, allowing the humans (fire fighters) to bring their experience to bear. Technology can give more time to take action as a catastrophe emerges, softening and delaying catastrophic failure.

We need to accept that the world is volatile, and the conditions for a catastrophic failure are always with us.

How are the risks we face changing? Whatever risks we face, how might our traditional strategies be less than optimum for dealing with those risks? What changes should we be making in our risk management strategies? In a world that is more volatile, it is more difficult to anticipate the unanticipated.

But what about the risks themselves? What risks that we already understand - where we have traditions, practices, institutions and common sense - are becoming less risky? What risks that we understand less fully, and as a result have less 'knowledge' of, are becoming more risky?

Familiar Ground

Both aspects are important. When we are surprised, or fall into danger or fear, we tend to move rapidly to familiar ground and familiar practices. If those familiar practices are protecting us from relatively less important risks, then the common senses they represent, themselves may endanger us. The 'new' risks, being less familiar, are more difficult to detect, more difficult to warn others of and more difficult to secure investments to combat.

The practices with which we tend to discover our risks usually consider only the past. We are driving from the rear-view mirror. We are not examining the style of how we go about interacting with our risks. The style we are habituated to shows us statistical unities and hides from us our friends and our enemies.

We have become exceptionally good at interacting with statistical realities, and are relatively much weaker at making sense of the unities of our customers, allies, investors and employees.

Style of Interaction

This dependence on disembodied statistical evidence, and incapacity to make sense of the human side of the business, is not so much a failure of intelligence services today as it represents a style of interaction with the world. We can see the same behaviors in every sales, marketing, manufacturing and finance department of every enterprise of any size in the western world today.

These tendencies combine to produce the tendency that we can see, in hindsight, of people holding on to old, safe, behaviors long after the behaviors have become obsolete or even dangerous.

Let's use inventory as an analogy. Twenty-five years ago, it was risky - financially, and operationally - not to maintain inventory on hand. Today it is risky, financially and operationally to maintain inventory. In the computer business, Dell has taught us that the value of a newly manufactured PC depreciates by roughly 6% per month during its first months after manufacture. Toyota has tried, mostly unsuccessfully, to teach us that to hold inventory damages our capacity to manufacture automobiles that produce satisfaction for our customers.

Mobilizing Employees

However, the vast majority of the Toyota revolution came from the way in which the managers of Toyota and the companies learning from it mobilized all of their employees' eyes, ears, brains and sensibilities in the job of improving quality and removing sources of dissatisfaction for their employees. The current situation is a direct parallel. In our experience, western enterprises persist in investment strategies with the wrong emphases.

In a world increasingly and dramatically more volatile, we are addicted to investments in prevention and prediction. We are naïve and mechanical in the ways that we prepare ourselves for taking action when our best efforts to predict fail us.

Distinguishing Risk

By contrast, our greatest opportunities to reduce risks in our organizations and our systems usually will be found through multiplication of our capacity to distinguish the risks we are not already familiar with, by building networks of concerned people who are talking to each other about their concerns. The Japanese manufacturing miracle was, in small part, due to extraordinarily ingenious engineering.

Investments in protecting against our employees is an example of a strategy that can easily backfire on us.

What does all this suggest? Opportunities to design new strategies, new tools and new practices that can help us anticipate growing and new risks, reduce the damage we sustain when our anticipation of risks 'pay out', and react more swiftly and effectively when we fail to anticipate risks.

The greatest part of the work and the opportunity of what we are speaking does not lie in a separate department of security, risk management and risk-avoidance, but rather in a set of new concerns and orientations that inform everything about how our client enterprises are managed, build tools, and work.

* Computerworld, November 2001

Chauncey Bell
Group Director

Group Director Chauncey Bell is the architect of a set of leading-edge practices for producing products, delivering services and managing enterprises. He joined the VISION group board in 2001, following the deal that saw BDA and VISION teams joining forces.

He has worked on significant projects for clients such as Intelligent Finance, Citibank, IBM, CEMEX, AT&T and General Motors. Chauncey holds several US patents on the design and construction of software for coordinating the action of people and tools in digital networks.

For 20 years, he has been a senior member of a distinctive team of academics and practitioners developing new theory and practices for management, education, entrepreneurship, innovation, trusting commercial relationships, and human coordination.

On graduation from Harvard College, he joined the management consulting division of Arthur D Little, where he specialized in the development of markets for social and technical innovations.

He ran a division of the Mayor's office in the city of Boston and served as an adviser to the US Conference of Mayors and National League of Cities.

In the 1980s, Chauncey led the design and development at Action Technologies, a California-based software design and development company founded by Dr. Fernando Flores. He was the design team leader for The Coordinator, a highly regarded early 'groupware' product for networked personal computers used by over 300,00 people worldwide.

Gerald Adams
Co-founder, Group Director

Gerald Adams is one of the founders of VISION and the company's leading technological innovator. His focus is invention by design that results in market breakthroughs for clients.

Gerald is an engineer who is firmly rooted in business realities and practicalities. Clients appreciate his ability to translate technology into the language of business and value his rapid-pace approach to technology delivery.

He has lead strategic technology projects for telephone and Internet banks, global insurance enterprises, dotcom ventures and worldwide corporate Internet initiatives. He has achieved significant results for companies such as: Swiss Bank Corp, AIG, Bank of Ireland, Dime Bank of New York, AOL Time Warner, TheStreet.com and many others.

Gerald lives with his family in Dublin, Ireland though he spends a considerable amount of his time engaged with the US arm of VISION's business. He holds a degree in engineering and mathematics from Trinity College, Dublin, Ireland and his extra-curricular passions include art, history and Greece.

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