Risk management - always bet on black

It’s Vegas Baby!

In this article I’ll pose the question whether the problem is that people (or executives or both) don’t know what risk is or choose to ignore it. We will see what the implications of either and/or both are.

The streets at Edwards Air Force Base, where the majority of both the Air Force and NASA aeronautical flight testing and research takes place, are not named for generals. They’re named for pilots killed on test flights. It’s a reminder to all who work there that the junction between technology and nature can be a dangerous place.
(Lane Wallace, Why We’re So Bad at Managing Risk, 2010).

The streets at Edwards Air Force Base, where the majority of both the Air Force and NASA aeronautical flight testing and research takes place, are not named for generals. They’re named for pilots killed on test flights. It’s a reminder to all who work there that the junction between technology and nature can be a dangerous place.
(Lane Wallace, Why We’re So Bad at Managing Risk, 2010).

In the same article Lane goes on to talk about the catastrophic oil spill in the gulf. She points out that BP is not new to offshore operations or the risks inherent in drilling into the earth. Lane asks the question “how did the company misjudge the dangers, risk and consequences of an accident so badly?” Herein lies the crux of it. Financial return will trump any and every other concern.

Leaving the stark reality of the Deepwater Horizon oil spill, the Challenger space shuttle accident and the emotive discussion on where the blame lies. Let’s have a conversation about the industry we all work in, an industry where technology and people co-exist and collaborate for commercial reasons.

Substituting risk management failures for NASA and BP disasters I want to know how we keep getting it so wrong… so often? My assertion is that Lane Wallace thinks the easy answer is, there’s a financial incentive for going forward, and a financial disincentive for holding back. Is that it? Does it all come down to money at the end of the day, no matter what the consequences? Or is it more nuanced?

Richard Leblanc wrote an article 25 Reasons for Risk Management Failure (2015). Having spoken to directors and officers about risk management he presented 25 reasons for risk management failure. The link to Richard’s article will be included at the end of this post. For now I want to include a subset from Richard’s list to see do they all, some or any of them resonate with you:

  1. Lack of enterprise risk management expertise on the board.
  2. Governance gaps over a material risk(s) within the board or across committees.
  3. Directors incapable of identifying and fully understanding the risks, or worse yet, don’t want to understand. Committees show no interest when they should be shocked.
  4. Internal oversight functions reporting to management instead of the board. A complacent board does not correct.
  5. Directors do not insist on a real-time line of sight over material risks and their mitigation/treatment.

I like that Richard lets the voice of those he interviewed do the talking for him instead of sermonising. Richard does conclude (in his introduction) that “based on my experience assisting boards, including boards that have failed and boards that cannot afford to fail… I have never encountered a risk management failure where the board was not at fault, based on what the board said or did, or failed to say or do.”

Lane Wallace points out that “risk is an elusive, and ultimately unconquerable, opponent.” That said Lane advises to “expect the unexpected. And plan accordingly.” Expect the unexpected. And plan accordingly. We don’t. Why? Richard Leblanc presents the reasons. “I have never encountered a risk management failure where the board was not at fault, based on what the board said or did, or failed to say or do.” The three wise monkeys strain of the C-ostrich, Do-ostrich disease has reached epidemic proportions. Is it, like risk, an ultimately unconquerable opponent?

I’ll leave you with this question? When is the next Deepwater Horizon oil spill or the Challenger space shuttle accident going to happen? Place your chips. Roll the dice. It’s Vegas baby!

Please read Richard’s article (http://corporatecomplianceinsights.com/25-reasons-for-risk-management-failure/) to see the full list. It’s insightful and frighteningly familiar.

For an even more frightening example of risk management failing please read Lane’s article: http://www.theatlantic.com/technology/archive/2010/06/why-were-so-bad-at-managing-risk/57522/