“Business people need to understand the psychology of risk more than the mathematics of risk.” Paul Gibbons, The Science of Successful Organizational Change: How Leaders Set Strategy, Change Behavior, and Create an Agile Culture
“A major lesson in risk management is that a 'receding sea' is not a lucky offer of an extra piece of free beach, but the warning sign of an upcoming tsunami.” Jos Berkemeijer
It is interesting to watch the evolving discussion about “opening up” various states and countries in the wake of the COVID-19 pandemic. Just last weekend protesters swarmed over several state’s capitols demanding that the governors begin rescinding what they believe to be draconian shut down rules.
In the United States, it appears that there are two clearly defined groups. One believes that we need to maintain the shut down to stop the spread of the virus. The other group believes that we are reaching a tipping point, and the harm of closing the economy is greater than the risk of the virus.
It appears that both are viable positions, so why is there such disagreement?
They disagree because neither side is following the most basic risk management principles! This is where it helps to actually have a risk expert in the room to facilitate the discussion.
What is the specific risk that the “leaders” are trying to avoid? There should be a risk statement that defines the cause, the risk and the effect. Have you seen that? I have not. What I have heard is a series of pablums followed by the imposition of rules. There is no identifiable risk statement, so let me help our leaders: If the virus is allowed to spread unchecked, then our hospitals will be overwhelmed and many people will die.
Was that so hard?
What about the protesters? I have to give them credit as they are clearly verbalizing their risk statement. It goes like this: If the economy remains shut down, then our businesses will fail resulting in long term economic harm to us personally.
Now we have two risks on our risk register! The next step is to rank the risks based on a probability and impact matrix. That matrix will have agreed upon definitions of probability (how likely the risk is to occur) and impact (how bad will it be if it does). Have you seen an agreed upon probability and impact statement?
You have not.
If both sides agreed to the scoring of the two risks, they could easily be prioritized and reassessed over time. At some point the risk of the economy being closed will overtake the risk of the pandemic spreading. But in the absence of structure, it reverts to each individual’s view of risk and reward. And that never works.
I could go on by describing how the underlying assumptions of the risk should be challenged or that they should conduct an analysis of any residual or secondary risks, but the point is made.
If you are going to make risk based decisions, make sure you have a risk expert in the room.
Coda
Processes only work if the people using them are virtuous. The founders of the United States knew that unvirtuous people could bring down any system, and they tried very hard to build in checks and balances to stop the accumulation of power. Looking back over history, virtually every civilization that collapsed from within did so because people who lacked virtue gained power. The motives of the people in power are important. You should ask yourself who benefits from a decision as a measure of the persons motives.