How Blending Business Continuity, Strategy and Risk Management Mitigates Black Swans and Shapeshifters

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Because we are asking the wrong questions precisely, we are getting the wrong answers precisely; and as a result we are creating false positives.

There seem to be a lot of sightings of “Black Swans” lately. Should we be concerned? Are we wishfully thinking, caught up in media hype? Or are we misinterpreting what a “Black Swan” event really is? The term “Black Swan” has become a popular buzzword for many, including contingency planners, risk managers and consultants. But there is a general lack of knowledge when it comes to rare events with serious consequences. Is your organization plagued by shapeshifters? It is naïve to try to predict the effects of a risk materializing entirely on the basis of relationships observed in historical data, especially highly aggregated historical data, business impact assessments and competitive intelligence research.

Unpredictability is becoming the new norm for business.

Fundamental uncertainties derive from our fragmentary understanding of risk and complex system dynamics and interdependencies. Abundant stochastic variation in risk parameters further exacerbates the ability to assess uncertainties clearly. Uncertainty is not just a single dimension, but also surrounds the potential impacts of forces such as globalization and decentralization, effects of movements of global markets and trade regimes, and the effectiveness and utility of risk identification and control measures such as buffering, use of incentives, or strict regulatory approaches. Crafting difficult decisions when faced with uncertainty requires a blending of skills from strategic planning, risk management, competitive intelligence and business continuity. Unless we change the paradigm of competitive intelligence, risk and business continuity activities, we will continue to get false positives and find ourselves reacting to events instead of being proactive.

Learning Objectives:

- 12 questions to refocus strategy, competitive intelligence, risk and business continuity alignment;
- Overcoming impacts of changing technology and alternative information distribution systems;
- 12 “Shapeshifters” that will influence competitive intelligence, risk and business continuity activities.

Provocateur Biosketch: Geary Sikich – Entrepreneur, consultant, author and business lecturer

Geary Sikich is a seasoned risk management professional who advises private and public sector executives to develop risk buffering strategies to protect their asset base. With a M.Ed. in Counseling and Guidance, Geary’s focus is human capital: what people think, who they are, what they need and how they communicate. With over 25 years in management consulting as a trusted advisor, crisis manager, senior executive and educator, Geary brings unprecedented value to clients worldwide. He is well-versed in contingency planning, risk management, human resource development, “war gaming,” as well as competitive intelligence, issues analysis, an

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  • Connectivity is a key driving force.Complexity is becoming the norm as business become more connected. All touchpoints must be operating in a cohesive fashion in order to create a continuity continuum.Each touchpoint must be responsive to the actions of the entire network of enterprises operating.We often times fail to account for resource constraints – human capital, financial resources, etc. all impact the resilience of the enterprise.
  • Debt becomes poisonous once it reaches 80% to 100% of GDP for governments, 90% of GDP for companies, and 85% of GDP for households. From then on, extra debt chokes growth. Stephen Cecchetti and his team at the Bank for International Settlements have written the definitive paper rebutting the pied pipers of ever-escalating credit."The debt problems facing advanced economies are even worse than we thought."
  • Here are some limitations to consider: Incompleteness of the model (unpredictability factors in) Incorrectly specified parameters/scope (Measurement tools are inadequate) Overly complex (It’s not easy to detect paradigm shifts, it’s best to claim to detect as many as possible and quietly bury your failures) Scenarios may no longer be appropriate (Unpredictability, evolving nature of the event over time means that the event seldom ends in the form that it started)  Obsolescence of the model (Unpredictability and evolution make the model obsolete) High cost to develop, operate and maintain (Skill set requires vast amounts of experience; limited by time and the nature of rare events) Require a high degree of interpretational skill (knowledge, experience, background – human capital) 
  • How Blending Business Continuity, Strategy and Risk Management Mitigates Black Swans and Shapeshifters

    1. 1. How Blending Business Continuity, Strategy and Risk Management Mitigates “Black Swans” and “Shapeshifters” A Complimentary Webinar from Aurora WDC 12:00 Noon Eastern /// Wednesday 03 April 2013 ~ featuring ~ Geary Sikich Dr. Craig Fleisher Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    2. 2. Questions, Commentary & Content α Use the Questions pane on your GoToWebinar control panel and all questions will be answered in the second half of the hour. α You are welcome to tweet any comments on Twitter where we are monitoring the hashtag #IntelCollab or eavesdrop via http://tweetchat.com/room/IntelCollab α Slides will be available after the webinar for embedding and sharing via http://slideshare.net/IntelCollab α To view the recording and download the PPT file, please register for a trial membership at http://IntelCollab.com. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    3. 3. Geary Sikich advises executives about complex decision making, risk, continuity and competing in the global economy. Connect with Geary via: LinkedIn Web: http://www.logicalmanagement.com Email: gsikich@logicalmanagement.com g.sikich@att.net Geary Sikich Skype: geary.sikich Author, Expert, Advisor The Intelligence Collaborative is the online learning and networking community powered by Aurora WDC, our clients, partners and other friends and dedicated to exploring how to apply intelligence methods to solve real- world business problems. Apply for a free 30-day trial membership at http://IntelCollab.com or learn more about Aurora at http://AuroraWDC.com – see you next time! Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    4. 4. AGENDA Defining the problem “Black Swans” “Shapeshifters” Suggested actions/possible solutions Q&A Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    5. 5. A black swan is a highly improbable event with three principal characteristics: it is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was.Taleb continues by recognizing what he terms theproblem – “Lack of knowledge when it comes to rare events with serious Nassim Taleb “The Black Swan: The Impact of the consequences.” Highly Improbable.” Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    6. 6. Skewed Paradigms: Extremely Rare Events – Strategy, Risk Management, Business Continuity Planning, Competitive Intelligence Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    7. 7. Randomness, Risk and Black SwansEffect of a singleobservation, event or elementplays a disproportionate role indecision-making creatingestimation errors whenprojecting the severity of theconsequences of the event. Thedepth of consequence and thebreadth of consequence areunderestimated resulting insurprise at the impact of theevent. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    8. 8. The stretcher who hammers out the metalAre you making things fit;regardless of theconsequences?You may be falling into an“Activity Trap” In Greek mythology Procrustes or "the stretcher [who hammers out the metal]", also known as Prokoptas or Damastes "subduer", was a rogue smith and bandit from Attica who physically attacked people by stretching them or cutting off their legs, so as to force them to fit the size of an iron bed. In general, when something is Procrustean, different lengths or sizes or properties are fitted to an arbitrary standard. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    9. 9. Randomness, Risk and Black SwansThe problem –  “Black Swan” event is a subjective term – Your “Black Swan” may be my “White” or “Gray” Swan  “Black Swan” events are labeled after the fact  “Black Swan” events are selective in their consequences for those who experience them  “Black Swan” events take the “fat tails” of power law systems seriously. Expect change to arrive not gradually, in a way that will allow the organization to adjust in real time, but in sudden discontinuities of great consequence that reshape the business environment, bringing both dangers and opportunities. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    10. 10. Prediction – ProjectionIf you don’t know what youdon’t know, how can youprepare for it?Conventional practices leave usvulnerable torandom, potentiallycatastrophic events, thatcannot be predicted based onsimple extrapolations from thepast or projections of thefuture. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    11. 11. Randomness, Risk and Black Swans Strategic plans, Risk Management plans, Business It is much easier to Continuity plans, Competitive sell: “Look what I Intelligence did for you” initiatives, etc., that are standalone activities than generally reflect good intentions – whether to meet “Look what I regulatory requirements or to avoided for you.” address governance. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    12. 12. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    13. 13. Shapeshifting is the nonlinear evolution of events combined with reactions to events. Shapeshifting can be influenced and somewhat controlled by individuals (an act of will, a decision, or situational awareness). Shapeshifting may be the result of natural forces, limited information, failure to work through the process of solution and/or extreme influence by external forces. Shapeshifting is evolutionary (uniqueness is created in the way that evolution occurs. Shapeshifting is not linear (evolution creates change, collateral factors come into play, consequences have long lasting effects. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    14. 14. Volatility and Disorder – Nonlinear Effects Execution Risk Positive Consequences Right Action Action Recognized Risk Altered Risk State No Action Wrong Action Execution Risk Negative Consequences Transparent Vulnerabilities? Outliers? Variables? Distorted Maps of Real Risks? Linear vs. Non-Linear Thinking Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    15. 15. Randomness, Risk and Black Swans A stone and its weight in pebbles – size matters. A collection of small units with semi-independent variations produces vastly different risk characteristics than a single large unit Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    16. 16. Randomness, Risk and Black Swans Non-predictability of events is not relevant with regard to the consequences of events. Effective decision making does not mean “perfect” – all decisions are flawed. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    17. 17. Randomness, Risk and Black Swans Since 1956 there have been over 200 incidents – from sunk rigs to blowouts, collapse and hurricanes, storms, etc. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    18. 18. Randomness, Risk and Black Swans Volcanic States? Idaho 10 volcanoes New Hampshire 2 volcanoes Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    19. 19. Randomness, Risk and Black Swans Emerging Risks – Likelihood, Impact & Velocity High Competition Global Workforce Geo-Political Sovereign Debt Infrastructure Environmental Markets RISK VELOCITY Economies Likelihood Very Rapid Foreign Sources Impact of the risk would be evident in a month Alternatives Rapid Technology Impact of the risk would be evident in a quarter Social Trends Slow Impact of the risk would be evident in a year Low Low High Impact •Traditional risk assessments that prioritize risk on probability and impact are outpaced by the speed at which risks move throughout the organization. While 70% of finance executives agree that risk velocity is a core consideration, only 11% have introduced it into their risk assessments. Source: Deloitte; Risk Integration Strategy Council Research Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    20. 20. Suggested Actions/Possible Solutions As a result of the globalized environment in which we operate today risks that were virtually unknown in the past decade continue to surface resulting in an increased need for organizations to constantly assess the global landscape to determine potential impacts (positive and negative) of risk realization. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    21. 21. False PositivesMistaking the absence of evidence(of harm) for the absence of harm.Overestimation of the chances ofsuccess and underestimation of thechances of failure.Artificially suppressed volatilitycauses fragility – extreme fragility –while exhibiting no visible risks.“Why did we build something sofragile (susceptible) to these typesof events?” Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    22. 22. Suggested Actions Step 1: Where Are We? Develop an External Environment Profile What are the key factors in our external environment and how much can we control them? Step 2: Where Are We? Develop an Internal Environment Profile Build detailed snapshots of your business activities as they are at present. Step 3: Where Are We Going? Develop Assumptions about the Future External Environment Catalog future influences systematically; know your key challenges and threats. Step 4: Where Can We Go? Develop a Capabilities Profile What are our strengths and needs? How are we doing in our key results and activities areas? Step 5: Where Might We Go? Develop Future Internal Environment Assumptions Build assumptions, potentials, etc. Do not build predictions or forecasts! Assess what the future business situation might look like. Step 6: Where Do We Want to Go? Develop Objectives Create a pyramid of objectives; redefine your business; set functional objectives. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    23. 23. Suggested Actions Step 7: What Do We Have to Do? Develop a Gap Analysis Profile What will be the effect of new external forces? What assumptions can we make about future changes to our environment? Step 8: What Could We Do? Opportunities and Problems Act to fill the gaps. Conduct an opportunity-problem feasibility analysis; risk analysis assessment; resource-requirements assessment. Build action program proposals. Step 9: What Should We Do? Select Strategy and Program Objectives Classify strategy and program objectives; make explicit commitments; adjust objectives. Step 10: How Can We Do It? Implementation Evaluate the impact of new programs. Step 11: How Are We Doing? Control Monitor external environment. Analyze fiscal and physical variances. Conduct an overall assessment. Step 12: Change What’s not Working Revise, Control, Remain Flexible Revise strategy and program objectives as needed; revise explicit commitments as needed; adjust objectives as needed. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    24. 24. Suggested Actions Heightened Awareness or Reactive and Backward Looking Preemptive Proactive Reactive Anticipates Change Recognizes Change Process is means to an end “Mission Critical” Recognizes complexity Causal focus overlooks & interconnectivity opacity, complexity & Fails to ask: “Is the interconnectivity process still relevant?” Research focuses on long term Research – tactical Research – trends, drivers, issues trends, drivers, issues prescriptive, little creative problem Expanded knowledge Knowledge: “Cylinders solving base of Excellence” Knowledge: potentially Not process dependent Process focused inaccurate “False Alignment – Alignment – “Cylinders Positives” SP, BC, RM, CI of Excellence” Alignment – “Defined Boundaries” Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    25. 25. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    26. 26. We know very little about how different highlydisruptive, nonlinear changes might interact withand amplify one another. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab
    27. 27. Questions, Commentary & Content α Use the Questions pane on your GoToWebinar control panel and all questions will be answered in the second half of the hour. α You are welcome to tweet any comments on Twitter where we are monitoring the hashtag #IntelCollab or eavesdrop via http://tweetchat.com/room/IntelCollab α Slides will be available after the webinar for embedding and sharing via http://slideshare.net/IntelCollab α To view the recording and download the PPT file, please register for a trial membership at http://IntelCollab.com. Powered byThe Intelligence Collaborativehttp://IntelCollab.com #IntelCollab

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