Harding and Yorke Unknown Risk paper


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Paper explaining the Early Warning System for Unknown risks to an organisation developed by Harding & Yorke in 2010

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Harding and Yorke Unknown Risk paper

  1. 1. Uncertainty Matters Building Early Warning Systems for Unknown Risks 1|2 Uncertainty is the new norm As the way we interact in business becomes more complex the level of FSA fines BAE £30m for uncertainty increases. Corporate Boards inaccurate accounting are under intense regulatory, financial records for activities in Tanzania. BEA also fined and reputational pressure to grapple £256m by USA with the double-edged sword of department of Justice for uncertainty. From a positive perspective, other false statements. uncertainty creates more opportunities Source: FT, 5 Feb 2010 for innovation, but this needs to be tempered with managing an increasing number Toyota chief is accused of of exposures as unknown risks grow. It is for this reason, uncertainty about the being 'safety deaf‘ by US future is now firmly on the Chairman’s Office agenda within leading corporates. This Congress Congressional paper focuses upon taking proactive action in managing unknown risks. inquiry as 39 deaths linked to car accelerator problems. Source: Daily Unknown risks need to be managed Telegraph, 25 Feb 2010 Unknown risks typically fall outside conventional risk and control systems, thus FSA fines Standard Life ‘unexpected’ issues are more frequently being handled by the Chairman’s Office. £2.45m for serious Unlike conventional risks, unknown risks can be wide reaching with many potential systems and controls outcomes across the organisation and ecosystem. In the extreme, these risks can failures Source: FSA , 20 lead to systemic exposures deep within the organisation and marketplace. Jan 2010 Retrospective regulation such as Sarbanes Oxley removes the safely net of ignorance as a corporate defence against ‘unforeseeable’ events. With the regulatory threat of executive imprisonment and the increasing litigious shareholders, the Chairman’s Office needs more advanced early warning systems of emergent unknown risks. Someone knows The pressure upon the Chairman’s Office is to strengthen their checks and balances in the way in which the business is managed by the Executive, thus turning the spotlight on the Risk Committee, who report into the Chairman’s Office. The reality is, that there is a high likelihood that any emergent risk was already known by someone within the corporate ecosystem of people either inside or outside the organisation. The challenge is that the early warning signals are often so weak or not >>
  2. 2. Uncertainty Matters Building Early Warning Systems for Unknown Risks 1|2 FSA record fine for visible to the Chairman’s Office that issues emerge ‘unexpectedly’. Developing early individual reaches £967k; warning indicators for unknown risks requires a new approach, which will affect the whole CEO of Genel Enerji, Turkish oil exploration, organisation. Effective measurement will enable the business to sense and predict caught dealing shares with emergent patterns and take necessary actions to mitigate against these exposures. insider information. Source: Daily Telegraph, The power of ecosystem anonymity 25 Feb 2010 Employees, customers, partners, suppliers and shareholders all form part of the Patients die as NHS trusts organisation’s eco-system that provides a 360º catchment for gathering data intelligence. miss patient safety alerts. However, it is important to provide a safe harbour in which to communicate. Anonymity Source: BBC, 16 Feb should be protected to ensure that people provide the most honest and accurate 2010 information without the pressure of being identified. Advanced technologies offer the IFA Park Row Associates ability to gather and understand large quantities of data quickly, in a scalable way whilst has to pay £7.8m in protecting anonymity. This approach strengthens the governance process and customer redress. stakeholder confidence when combined with positive responsiveness. Source: City Wire, 24 Feb 2010 A common currency of measurement Using different feeling based measurements for each group targeted within an ecosystem enables checks and balances to be inbuilt. This is achieved using a digital survey so each person is asked to assess ‘how’ and ‘why’ they feel towards risk activities within their area of interaction. By underpinning each survey with common structure, a universal currency of measurement can be used. Managing emergent patterns at the edge Advanced interactive visualisation can be used to identify emergent patterns, allowing a rapid way to understand the complexity of the information gathered, providing lead indicators of perceived risks. Informed decisions can then be taken to undertake deeper investigations into the root of the issues. Once further evidence has been captured proactive change can be considered, planned, prioritised and implemented. Intelligence gathered can also be used for predictions and repeatable benchmarking, providing the basis for managing the uncertainties around risk. This repeatable process leads to a greater sense and respond capability for managing uncertainty. Beyond one method Meeting the threats of unknown risks means rethinking beyond more conventional risk Contact us methods to deal with the increasing levels of complexity and uncertainty. Building early Harding & Yorke Stuart Lamb warning systems for unknown risks is fast becoming a must have capability. t:/ + 44 (0) 1603 507052 Uncertainty matters! e:/ StuartL@empathy.co.uk w:/ empathy.co.uk