Managing Risk in Uncertain times


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Risk in Uncertain Times - An approach to assess risk readiness, implications and risk mitigation

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Managing Risk in Uncertain times

  1. 1. Risk in Uncertain Times A approach to assess risk readiness, implications and risk mitigation MAY 2009
  2. 2.  “there  is  nothing  more  dif/icult  to  plan,  more  doubtful  of  success,  nor  more   dangerous  to  manage  than  the  creation  of  a  new  system”    - Machiavelli  Risk in uncertain times Risk  management  today  is  no  longer  something  that  can  be  taken  as  a  given  -­‐  that  the  tools,   processes  and  procedures  in  place  are  doing  their  job.  As  we  have  seen,  in  recent  =mes,  risk   management  has  failed  in  a  spectacular  fashion,  arguably  a  major  contributor  to  the  global   financial  crisis  currently  being  grappled  with.  We  hear  on  a  daily  basis  about  “  toxic  assets”,  about   lack  of  understanding  on  “exo=c”  financial  instruments,  about  the  dubious  ethical  prac=ces  on   Wall  Street  and  the  corporate  values  absen=ng  themselves  from  the  boardroom.  When  common   sense  failures  have  played  out  on  the  front  page  of  na=onal  newspapers,  it  is  clear  that  some   organisa=ons  did  not  just  have  a  gap  in  basic  risk  assessment  procedures  -­‐  these  were  symptoms  of   systema=c  and  cultural  collapse  manifes=ng  themselves  in  less  obvious  ways.  The  most  serious   gaps  being  papered  over  did  not  relate  to  technology  and  models  -­‐  the  tools  that  have  been  the   mainstay  of  risk  management,  but  rather  the  roles  people  played  and  the  company  decision-­‐ making  processes.  At  its  most  basic,  catastrophic  failure  has  its  origins  with  people  -­‐  their   behaviors,  values,  ethics  and  interac=on.   If  we  believe  that  people  are  an  important  and  oGen  mis-­‐aligned  aspect  of  risk  management,  then   we  need  to  understand  their  role  in  managing  the  impact  of  change  in  uncertain  business   environments  and  mi=ga=ng  the  probability  or  impact  of  nega=ve  changes  that  could  occur  in  the   future.  “Let’s  today  step  out  of  the  normal  boundaries  of  analysis  of  our  economic   crisis  and  ask  a  more  radical  question:  What  if  the  crisis  of  2008   represents  something  much  more  fundamental  than  a  deep  recession?   What  if  it’s  telling  us  that  the  whole  growth  model  we  created  over  the  last   50  years  is  simply  unsustainable  economically  and  ecologically  and  that   2008  was  when  we  hit  the  wall  -­  when  Mother  nature  and  the  market  both   said:  “No  more”  ”    - Thomas Friedman Page 2
  3. 3. The new normal requires a new approach  “Societies  are  said  to  swing  like  pendulums  between  alternating  phases  of   vigor  and  decay;  progress  and  reaction;  licentiousness  and  puritanism.   Each  outward  movement  produces  a  crisis  of  excess  which  leads  to  a   reaction.  The  equilibrium  position  is  hard  to  achieve  and  always  unstable.”     - Robert Skidelsky It  is  becoming  more  apparent  that  the  current  downturn  is  fundamentally  different  from  those   of  the  past.  We  are  not  just  experiencing  another  phase  in  the  business  cycle,  but  a   fundamental  restructuring  of  economies.  So  the  old  adage  “hindsight  does  not  lead  to   foresight”  con=nues  to  ring  true  today.  The  tried  and  true  methods,  tools  and  processes  of  the   past  might  not  necessarily  provide  the  solid  founda=ons  for  risk  management  required  for   future  growth.  We  need  to  embrace  the  uncertainty  that  we  are  grappling  with  today  and  look   to  new  ways  of  understanding  how  to  effec=vely  include  our  people  in  new  risk  management   frames  and  strategies. Today’s  economic  slowdown  can  serve  as  a  catalyst  for  organisa=ons  to  take  a  more  strategic   perspec=ve  on  risk.  It  can  create  the  impetus  for  organisa=ons  to  take  a  more  intelligent,  fact-­‐ based  approach  to  understanding  their  current  and  future  risk  requirements  as  well  as   providing  the  opportunity  to  iden=fy  and  fill  gaps.  Most  importantly,  it  can  drive  the  mandate   for  overall  workforce  transforma=on  on  views  towards  risk  -­‐  a  rethinking  of  the  work  that  must   be  done,  the  manner  in  which  individuals  accomplish  the  work  and  the  role  senior  execu=ves   need  to  play  in  helping  the  organisa=on  assess  and  manage  risk  through  difficult  =mes. Emerging  Op+ons  has  been  working  with  Cogni+ve  Edge  in  the  use  of  “narra+ve  techniques”  to   capture  and  understand  the  drivers  of  risk  in  Context. The  approach  is  based  on  some  core  principles: • Faced  with  complex,  difficult  or  intractable  challenges,  we  prefer  to  find  several  people   with  appropriate  exper+se  and  listen  to  their  stories  (generally  known  as  fragments  or   anecdotes)  form  which  new  understanding  and  capability  is  synthesized. • It  is  not  just  key  employees  who  manage  risk;  it  is  cri+cal  to  discover  who  has  the  ability  to   impact  and  influence  risk  and  where  it  these  ac+vi+es  can  occur. • Systems  to  support  managing  risk  need  to  also  support  ambiguous  enquiries,  to  reflect  the   way  in  which  people  have  conversa+ons  around  the  water  coolers,  par++ons  or  silos.   Humans  engage  in  “serendipitous  encounters”  with  others,  which  can  have  an  impact  on   percep+ons  of  risk. Page 3
  4. 4. Our approach to Risk Emerging  Op=ons  employees  a  three  phase  approach  to  the  human  face  of  Risk: Making sense The Human Identification Risk mitigation of risk face of Risk of Risk areas & intervention implications This  approach  provides  the  ability  to  very  quickly  understand  what  people  perceive  about  risk   and  how  they  approach  addressing  and  mi=ga=ng  risk  issues.  The  workshops  and  processes   used  are  not  mutually  exclusive,  and  are  designed  to  sit  alongside  exis=ng  risk  management   programs  as  an  adjunct  to  and  value  added  missing  link. Iden*fica*on  of  Risk  areas Risk  exists  at  four  levels: • Strategic  –  risks  ensuring  business  survival  and  long-­‐term  security  or  stability  of  the   organiza=on • Program  –  risks  involved  in  managing  interdependencies  between  individual  projects   and  the  wider  business  environment • Projects  –  risks  involved  in  making  progress  against  project  plans • Opera=onal  –  risks  involved  in  the  day  to  day  running  of  the  business Associated  with  each  level  of  risk  are  the  people  aspects  of  the  business  that  will  impact  on   each  level  of  risk  and  the  rela=onships  that  exist  between  risk  levels: • Values  by  which  the  organiza=on  operates • Rela=onship  networks • Trust • Stakeholder  rela=onships • Transparency • Knowledge  sharing  Even  the  great  neo-­liberal  ideological  standard-­bearer,  the  long-­serving   chairman  of  the  US  Federal  Reserve  Alan  Greenspan,    recently  conceded   in  testimony  before  Congress  that  his  ideological  viewpoint  was  /lawed,   that  the  “whole  intellectual  edi/ice”  of  modern  risk  management  had   collapsed  - Kevin Rudd Page 4
  5. 5. Emerging  Op=ons  uses  SenseMakerTM  to  capture  large  volumes  of  narra=ve  from  the   organiza=on  to  unpack  staff  and  management  views  on  risk  at  each  level,  its  impact  on  the   organisa=on  and  areas  where  risk  is  not  being  managed  well  from  the  grass  roots  level  up.   Literally  thousands  of  stories,  anecdotes,  pictures,  ar=cles,  verbal  records  and  much  more,   can  be  captured  at  a  minimal  cost.  Those  who  provide  the  stories  or  submit  other  sense   making  material  answer  a  number  of  ques=ons  that  provide  the  indexing  criteria,  and   subsequent  repor=ng.  Indexing  is  customised  to  each  organisa=on’s  risk  profile  and  central  to   the  Cogni=ve  Edge  Sense  Making  soGware’s  ability  to  shown  paWerns  that  could  uncover   emerging  trends,  issues  or  insights  around  risk  that  are  not  readily  apparent  with  tradi=onal   methods  of  data  interroga=on. SenseMakerTM  will  allow  for  the  uncovering  of  paWerns  around  risk  and  people’s  appe=te  for   risk  vs  reward.  The  dataset  collected,  will  also  form  the  basis  for  the  ongoing  benchmarking       of  iden=fied  risk  drivers  moving  forward. The  kind  of  complex  organic  database  created,  can  help  you  find  out  who  is  saying  what,  and   how  a  challenge  or  project  is  being  handled.  For  example,  six  clicks  of  a  mouse  buWon  can  tell   you  all  the  stories  told  by  an  experienced  staff  member,  facing  a  crisis,  involving  deep  conflict   and  emo=ons,  told  from  their  point  of  view,  with  the  inten=on  of  teaching.  Depending  on  the   number  of  queries  you  look  at,  you  can  narrow  or  expand  your  poten=al  insight  about  what   might  be  relevant  and  what  might  not. SenseMakerTM  will  provide  the  organisa*on  with: • ability  to  allow  mul+ple  perspec+ves  to  be  visible  and  recognized  -­‐  to  make  the   “invisible  voices  visible” •  ability  to  value  dissent  without  requiring  aRribu+on  of  blame • Providing  perspec+ves  and  frameworks  that  enable  people  to  take  ac+on  in   addressing  complex  risk  issues   • Compliment  and  work  in  conjunc+on  with  exis+ng  risk  tools  and  processes • The  use  of  narra+ve  as  a  key  component  of  collec+ng  and  understanding  knowledge   in  context • a  founda+on  for  risk  benchmarking • The  ability  to  uncover  risk  related  issues  origina+ng  from  changing  workforce   composi+on •  A  boRom-­‐up  approach  to  iden+fying  issues  masked  through  organisa+on  hierarchy • A  near  real  +me  view  of  the  organisa+on  and  how  it  manages  risk •  An  understanding  of  areas  that  need  greater  focus  on  risk  mi+ga+on Page 5
  6. 6. Making  sense  of  risk  implica*ons  for  the  business Behaviours  of  personnel  in  the  organisa+on  can  expose  it  to  significant  risk,  be  it  through  reputa+on,  financial   or  ethical  considera+ons. The  second  arm  of  the  Emerging  Op+ons  approach  to  Risk  assessment,  iden+fica+on,  and  mi+ga+on  is  based   on  a  two  day  workshop  covering  three  key  areas: 1. Future  Backwards  -­‐  uncovering  mul+ple  perspec+ves  on  risk 2. Development  of  a  Risk  support  framework 3. Archetype  Extrac+on  -­‐  developing  a  shared  understanding  on  risk The  Future  Backwards The  Future,  Backwards  method  was  developed  as  an  alterna+ve  to  scenario  planning  and  is  designed  to   increase  the  number  of  perspec+ves  that  a  group  can  take  both  on  an  understanding  of  their  past,  and  of   the  range  of  possible  futures.  It  can  be  used  to  discover  what  entrained  paRerns  of  past  percep+ons  of  risk   in  an  organisa+on  are  determining  its  future.  It  can  be  used  to  compare  and  contrast  different  perspec+ves   as  to  the  present  and  the  future  of  risk.  It  can  be  used  to  generate  mul+ple  turning  points  or  decision   points  for  use  in  the  social  construc+on  of  the  Risk  Support  framework  outlined  below. Page 6
  7. 7. Risk  Support  framework A  Risk  Support  framework  for  each  organisa+on  will  be  developed  by  the  workshop  par+cipants.   This  framework  is  based  upon  the  Cynefin  complexity  framework  developed  by  Dave  Snowden  &   Cogni+ve  Edge  Pte  Ltd.    The  advantages  of  this  framework  include  the  ability  to  very  quickly   iden+fy  types  of  risk  that  exist,  and  priori+se  approaches  to  dealing  with  this  risk. The  framework….. At  the  heart  of  the  approach  is  the  Cynefin  framework;  an  open  systems  model  that  enhances   sense  making  and  provides  support  for  decision  making.     Understanding  the  dis+nc+on  between  ordered  and  unordered  elements  of  a  complex  or   intractable  problem  leads  to  the  applica+on  for  different  methods  for  diagnosis  and  interven+on   derived  from  the  different  contexts. • Ordered  systems  are  based  on  the  belief  that  it  was  just  a  maRer  of  +me  and  resources  before   the  rela+onships  between  cause  and  effect  could  be  discovered  in  any  situa+on • Unorder  -­‐  or  emergent  order.  PaRerns  are  self  organising  and  there  too  are  mul+ple   possibili+es  and  op+ons  to  discern  a  rela+onship  between  cause  and  effect. The  many  management  tools  and  processes  that  we  have  available  to  address  organisa+onal  issues   primarily  assume  that  there  is  order-­‐  a  definable  rela+onship  between  cause  and  effect  that  can   inform  strategy  and  interven+ons.    In  current  complex  and  turbulent  environments,  it  is   increasingly  obvious  that  these  approaches  do  not  serve  us  well  when  dealing  with  complex   interac+ons.      The  Cogni+ve  Edge  methods  provide  the  opportunity  for  iden+fying  the  different   elements  that  need  to  be  managed,  and  specific  tools  designed  to  support  ac+on  in  the  unordered   domain. Underpinning  concepts  for  using  the   Cynefin  framework   • Sense  Making…. Unlike  many  management  models  and   frameworks,  the  framework  and  the   boundaries  are  not  predetermined.      The   boundaries  emerge  through  discourse   rather  than  fi]ng  predetermined   categories.    Sense  making  is  exploratory,   can  detect  weak  signals  and  new  paRerns,   but  is  not  a  quick  fix  process  . • Social  Construc+on…. Using  data  drawn  from  par+cipants,  the   framework  is  socially  constructed  within  an   organisa+on  using  one  of  a  number  of   possible  methods.    Consultants  are   responsible  for  providing  the  opportunity   for  sense  making;  but  they  are  not  involved   as  experts  in  the  collec+on  and  ini+al   ! analysis  of  the  data. • Gaining  perspec+ve….. The  fundamental  purpose  is  to  enable  a   group  of  people  to  see  things  from  mul+ple   perspec+ves  and  therefore  to  gain  new   insights  and  ways  to  take  ac+on. Page 7
  8. 8. Archetype  extrac*on Archetype  extrac+on  is  an  approach  to  deriving  meaning  from  a  body  of  anecdotal  material  either  gathered   in  advance  or  created  in  the  workshop.  The  results  are  cultural  constructs  (known  as  emergent  proper*es,   these  are  expressed  as  archetypes,  values,  and  themes)  and  can  be  used  directly  or  contrasted  with   espoused  values,  or  with  the  construc+ons  of  emergent  meaning  from  different  groups  (how  do  managers   see  risk  themselves,  how  is  risk  seen  by  employees  etc). Archetypes  are  constructs  of  shared  meaning  that  encapsulate  and  ar+culate  social  understandings  about   "the  way  things  are"  for  a  community.  Archetypes  are  not  generally  about  things  everyone  can  easily  talk   about,  but  are  usually  about  things  that  are  not  well  ar+culated  in  any  other  way.  The  process  of  deriving   archetypes  is  about  disclosure,  discovery,  and  understanding. Archetypes  are  not  stereotypes   We  use  three  heuris+cs  to  dis+nguish  archetypes  from  stereotypes.   Archetypes  are  uni-­‐dimensional  extremes,  caricatures  that  could  never   describe  a  real  person  or  issue  or  situa+on.  Part  of  their  u+lity  is  in  their   extremity,  that  they  help  us  to  discuss  the  boundaries  of  experience,  which   are  usually  the  places  we  are  most  concerned  with  coping  with.   Everyone  and  everything  can  be  iden+fied  with  archetypes  in  some  way;  but   nobody  and  nothing  fits  a  stereotype.  Stereotypes  divide  but  archetypes   integrate.   A  group  of  archetypes  together  represents  a  "family"  of  forces  within  a   community  or  with  respect  to  a  subject.  Thus  one  archetype  doesn't  "work"  in   isola+on  but  must  always  be  understood  in  the  context  of  the  collec+ve   representa+on  of  a  community  and  a  concern.  A  stereotype  has  few  if  any   connec+ons  and  is  defined  more  by  its  isola+on  than  by  its  rela+onships. Uses  of  archetypes Once  derived,  archetypes  provide  a  means  of  developing  a  common  language   with  which  to  address  issues  that  are  important  but  not  always  easily  surfaced.   For  example: •  People  may  use  archetypes  to  help  two  groups  understand  their  differing     perspec+ves  on  risk. •  People  may  use  archetypes  to  organize  narra+ve  historical  data  so  that   they  can  quickly  find  meaningful  analogies  to  a  risk  situa+on  they  are  facing   today. •  People  may  use  archetypes  to  design  new  approaches  to  risk  mi+ga+on    by   tes+ng  new  procedures  against  the  reac+ons  of  a  family  of  archetypes  which   represents  features  of  the  organisa+on  /  customer  community.   Page 8
  9. 9. Risk  mi*ga*on  &  interven*on The  first  two  phases  of  our  approach  to  risk  will  have  provided  insight  into  peoples  views,   a]tudes  and  approaches  to  risk  in  an  organisa+on.  We  will  also  have  iden+fied  specific  risk   issues  present,  and  some  similari+es  /  differences  that  exist  across  divisions.  A  key  pool  of   risk  issues  will  have  been  iden+fied  in  the  complex  domain  of  the  risk  framework  that  need   further  explora+on. The  focus  of  the  third  phase  is  on  the  development  of  specific  risk  mi+ga+on  interven+ons   to  address  those  highly  complex  risk  issues  iden+fied. Complex  risk  issues  cannot  be  dealt  with  in  the  same  manner  as  those  where  there  is  a   rela+onship  between  cause  and  effect.  Truly  complex  risk  issues  need  to  have  interven+ons   developed  through  small  scale  probes  and  experiments.  If  a  specific  interven+on  is   successful,  then  its  applica+on  can  be  amplified.  If  it  has  liRle  or  no  effect,  then  that   approach  can  be  discounted.  This  approach  provides  for  the  development  of  high  impact,   low  cost  interven+ons  in    short  +me  frame. A  one  day  workshop  with  key  stakeholders  and  representa+ves  of  the  business  will  provide   for  the  development  of  an  interven+on  strategy  and  implementa+on  roadmap  to  address   complex  risk  issues. Page 9
  10. 10. About us: Emerging Options are a consulting network specialising in complexity and ways of helping organisations and groups understand the world in which they participate in order to act. Vivien Read is a founder of Emerging Options. Viv has over 30 years experience as a consultant and manager in organisational strategy, change management, industrial relations, leadership development, and action learning. She has co facilitated 4 Cognitive Edge accreditation programs, in Australia and South East Asia. She is currently involved in projects using the Cognitive Edge tools and processes in Australia and Singapore. Viv is a frequent presenter at conferences, seminars and professional groups including knowledge management societies, facilitator networks, and training and development groups. Chris Fletcher is a co-founder of Emerging Options. Prior to starting Emerging Options, Chris was the Asia Pacific Director for Knowledgement Management at Deloitte. He has over 20 years experience working in Marketing, Business Development, Strategy and Knowledge Management - predominantly in the professional services sector. His current focus is on using Cognitive Edge tools and processes to help organisations and groups understand complex issues, connect people and develop networks. Chris is a regular speaker at conferences and seminars in the Asia Pacific region. For more information on this project or to express interest in participating, please contact: Viv Read email: Phone: +61 414 294 339 Chris Fletcher email: Phone: +61 402 308 403 Page 10
  11. 11.    ATTACHMENT  A Sensemaker output Quantitative & Qualitative Data Sensemaker provides hard and soft data for actionable results Narrative fragments Sensemaker uses fragments to uncover patterns not readily visible Page 11
  12. 12. Sensemaker Reporting Page 12