THE KNOWLEDGE MANAGEMENT ROLE
IN MITIGATING OPERATIONAL RISK
Eduardo C. F. Longo

Paper presented by Eduardo C. F. Longo at the
European Conference on Intellectual
Capital, INHolland University of Applied Sciences.
Haarlem, The Netherlands
28-29 April 2009

January 28, 1986

Space Shuttle Challenger disaster
Cause: 2 rubber O-rings leaked

January 27, 1986
 Engineers were concerned that the O-rings
would not seal at the predicted temperature for
the launch
 The evidence was presented in 13 charts
 NASA officials pointed out weaknesses in the
charts
 There was agreement that the evidence was
inconclusive

Edward Tufte discusses this case in his seminal
book “Visual Explanations”
The engineers reached
the correct conclusion:
cold weather was a
risk to the O-rings

Edward Tufte discusses this case in his seminal
book “Visual Explanations”
Failed to present the
evidence effectively
The engineers reached
the correct conclusion:
cold weather was a
risk to the O-rings

Edward Tufte discusses this case in his seminal
book “Visual Explanations”
A catastrophic decision
was not avoided
Failed to present the
evidence effectively
The engineers reached
the correct conclusion:
cold weather was a
risk to the O-rings

Edward Tufte discusses this case in his seminal
book “Visual Explanations”
Failed to present the
No one of the 13 charts
evidence effectively
depicted the link between
temperature and O-ring
damage
They had all the information
necessary to diagnose the
relationship

The main point is that
A better information design could reveal
the serious risk of the launch

This case is an example of the influence
Intangible
assets, e.g.
information and
knowledge

Intangible assets are increasingly
important
Create Pose risks if
economic value mismanaged

We propose to integrate
Knowledge Operational
Management Risk
i. how information and knowledge create the
possibility of OR events
ii. how they could be used to avoid these
events

 Knowledge is related to our “life
history” and mental models
 KM should focus on supporting
decisions and actions
Knowledge  Instead of managing, stimulating
Management
 The risk of loss due to inadequate
or failed internal processes, people
and systems, or to external events
 Very broad concept
Operational  Part of any business activity
Risk  Gains importance

System /
Human External
Process Fraud
error events
failure
Information Perspective
Information loss Interpretation error Information falsification Lack of monitoring tools
Bad data quality Information treatment Information lost to
error competitors
Data capturing error Lack of informational
tools to identify fraud
Data treatment error Information security
fragility
Inadequate Loss of previous Social engineering Dependence on key
Perspective
documentation of experiences personnel
Knowledge
business knowledge
Decisions biased by
Inadequate personal beliefs
documentation of
adopted business rules
perspective
Difficulties to Flaws in decision Competitive Image negatively Barriers to
Business
identify and making advantage loss affected creation of new
benefit from knowledge
Flaws in strategy Financial loss Waste of resources
opportunities
definition Barriers to
innovation

[ ]
Causality is not
fully predictable

In the Challenger disaster,
System /
Process
failure
Human
error [Causality is not
fully predictable ]
Knowledge Information Perspective
Interpretation error
Data treatment Information
error treatment error
Perspective
Decisions biased
by personal beliefs
perspective
Flaws in Image
Business
Financial Death of 7
decision negatively
loss astronauts
making affected

Information Management Role
Information is an asset of an organization
Part of operational
No intrinsic value
processes

Information Management Role
Information is an asset of an organization
Design that favors
Quality Availability
understanding

Information Management Role
Available to the company
Yes No
Available to competitors
Yes
Maintain Obtain
Protect Research
No

Knowledge Management Role
Loss of Barriers to Loss of relative
organizational knowledge competitive
knowledge creation advantage

Knowledge Management Role
Loss of
organizational
knowledge
 Processes and IT systems poorly documented
 Lack of mentoring programs

Knowledge Management Role
Barriers to
knowledge
creation
 Lack of efforts that foster knowledge creation
 Aggressive intellectual property programs

Knowledge Management Role
Loss of relative
competitive
advantage
 Industrial espionage
 Loss of human capital

This approach has clear benefits
Connect KM Broader
to a clear understanding
business driver of risk events
Knowledge Management
Operational Risk
Adopt an interdisciplinary approach
Optimize investments & efforts

Final words
Complex Complicated
Knowledge Management
Operational Risk
Chaotic Simple
Cynefin framework; originally developed by Dave Snowden and collaborators

Final words
Knowledge Management
Operational Risk
 First step towards an integrative model
 There is no “best practice”, but
“emergent practices”
 Coherent and necessary

Thank
you!
Eduardo C. F. Longo
ecflongo@synapsing.com.br