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The Knowledge Management Role In Mitigating Operational Risk

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The Knowledge Management Role In Mitigating Operational Risk

  1. 1. THE KNOWLEDGE MANAGEMENT ROLE IN MITIGATING OPERATIONAL RISK Eduardo C. F. Longo
  2. 2. 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
  3. 3. January 28, 1986
  4. 4. Space Shuttle Challenger disaster Cause: 2 rubber O-rings leaked
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. The main point is that A better information design could reveal the serious risk of the launch
  11. 11. This case is an example of the influence Intangible assets, e.g. information and knowledge
  12. 12. Intangible assets are increasingly important Create Pose risks if economic value mismanaged
  13. 13. 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
  14. 14.  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
  15. 15. 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
  16. 16. [ ] Causality is not fully predictable
  17. 17. 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
  18. 18. Information Management Role Information is an asset of an organization Part of operational No intrinsic value processes
  19. 19. Information Management Role Information is an asset of an organization Design that favors Quality Availability understanding
  20. 20. Information Management Role Available to the company Yes No Available to competitors Yes Maintain Obtain Protect Research No
  21. 21. Knowledge Management Role Loss of Barriers to Loss of relative organizational knowledge competitive knowledge creation advantage
  22. 22. Knowledge Management Role Loss of organizational knowledge  Processes and IT systems poorly documented  Lack of mentoring programs
  23. 23. Knowledge Management Role Barriers to knowledge creation  Lack of efforts that foster knowledge creation  Aggressive intellectual property programs
  24. 24. Knowledge Management Role Loss of relative competitive advantage  Industrial espionage  Loss of human capital
  25. 25. 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
  26. 26. Final words Complex Complicated Knowledge Management Operational Risk Chaotic Simple Cynefin framework; originally developed by Dave Snowden and collaborators
  27. 27. Final words Knowledge Management Operational Risk  First step towards an integrative model  There is no “best practice”, but “emergent practices”  Coherent and necessary
  28. 28. Thank you! Eduardo C. F. Longo ecflongo@synapsing.com.br

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