Coping with Risks – Fourth Blog Post of Four

Unless polar night prevails, one can say with confidence that the sun will rise over the horizon and bring daylight the next morning. But, eventually one day in the distant future it will cease to rise. The thought is so remote and unimaginable that we dismiss it entirely and don’t apply any risk management to it. No mathematician in the world would be able to calculate such risk and come up with a sensible probability number, nor a time horizon. It would also be useless with any risk mitigation what so ever.

In comparison, it’s immensely easier to forecast an earthquake. Still, it will be impossible to predict the exact point of time, but it’s at least within comprehension to try to do the maths.

With even more confidence, we can state that there will come economic depressions or booms that will give birth to new flourishing opportunities for the agile enterpriser and risk taker.

In this fourth article about risk management, I will develop my thoughts on how an organization can prepare for risk without being constantly vigilant and drain valuable energy that can be used for better things.

Face value of risk

In theory, everything can be explained, predicted and managed in orderly forms. The discipline of risk management is to a great extent based on scientific method. Yet, it not seldom fails to protect companies when it really matters. For instance, new laws or regulations may redefine the competitive landscape in a sudden stroke and such legal risks can’t be insured against.

Hence, I would like to put forward three general assumptions:

1. Risks can’t be avoided, only dealt with.
2. Risks often turn up in new unpredictable shapes.
3. Risks can’t be accurately calculated.

These three pillars of thought challenge the traditional risk management models that often are predictive and prescriptive.

In real life, the business world and society, at an aggregate level, have shown over and over a remarkable resilience against external threats and catastrophes. There have been epidemics, natural disasters, world wars, recessions, but every time life has emerged as the winner. To this day, all the prophets of doom have turned out to be wrong. Why have they been so wrong?

I mean we can trace it all the way to the very elixir of life that has driven humanity forward for thousands of years. It seems to lie in our deepest nature to explore, find new paths and reorganize under chaos. If we can embrace this aspiration in the daily business, together with traditional risk management, I think there will be a lasting foundation for coping with risk with composure.

Achieving the risk resilient organisation

What would a risk resilient organization look like? An organization that is equipped for uncertainty and good at mastering risks. I believe the answer can be found in building a culture that encompasses several or all of the following guiding principles:

• Encourage development of autonomous, but overlapping teams, even competing with each other in a salutary atmosphere.
• Bring the right people together and trust they will solve the problem.
• Break large tasks down into smaller more manageable pieces.
• Encourage cross-functional learning by blending experiences, competences, personalities, age and gender. Watch up if there is too much consensus in a team! “Whenever people agree with me I always feel I must be wrong.” (Oscar Wilde)
• Allow a certain degree of “creative chaos” and deviation. Historically, many of the greatest inventions stem from accidents.
• Understand the past, learn from it, but don’t cling to it. Phase out burdensome heritage that makes your organisation vulnerable to change and a victim of technological disruption.

“Only those who will risk going too far can possibly find out how far one can go.” (T.S Elliot)