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Reflections on risk management in organizations

February 27, 2011 Leave a comment

Risk management matrix in Bulgarian. Image is ...

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Book review notes from “Surviving and thriving in uncertainty: Creating the risk intelligent enterprise” by Frederick Funston and Steven Wagner.

Funston, F., & Wagner, S.  (2010). Surviving and thriving in uncertainty: creating the risk intelligent enterprise. Jphn Wiley & Sons, Hoboken, NJ.

I was led to this book during our environmental scanning for higher education. It has a lot of insights that I want to summarize here and share because I think they are broadly applicable to all of our interests. A lot of the readings in this course are concerned with creating grand visions of excellent futures and many are somewhat less helpful when it comes to implementing a strategy to get to those visions of future. Regardless of the vision you’re striving for, one thing can be certain: you will experience risk and reward opportunities all along the way and be constantly faced with making judgments about which strategies to resource and which to terminate. One of the consistent failures of strategic planners is a failure to consider implementation and management along the way. That’s why this book on developing risk intelligence personally and within an organization is both timely and necessary.

The book comes in three parts. Part one describes the consequences of failure to conduct effective risk management. Part two describes 10 essential risk intelligence skills. Part three describes how to design risk intelligence into your organization.

I’m when you concentrate on part two: the 10 essential risk intelligence skills. The book devotes a full chapter to each of these skills beginning with the consequences of not having the skill and therefore why it’s important.

Briefly:

  1. identify your assumptions explicitly
  2. maintain constant vigilance on the risk boundary
  3. factor in velocity and momentum
  4. manage key connections carefully
  5. anticipate causes of failure
  6. verify sources and corroborate information
  7. maintain a margin of safety
  8. establish your time horizon
  9. take enough of the right kinds of risks
  10. develop and sustain operational discipline

and now for a short discussion of these:

  1. identify your assumptions explicitly: trends, themes, forecasts change with such regularity that assumptions have a shelf-life. I recommend the discipline of assumptions based planning which examines a plan before it is implemented to identify critical assumptions and their effect on maintaining the cognitive structure of the plan. It’s called identifying loadbearing members and is something that we use in military planning with great effect. Examining the assumptions includes stating why it’s necessary to make and what the justification for the assumption is. Should identify what it would take to prove or disprove the assumption. We should consider the cost of turning the assumption and the fact. We also need to know the last time the information is of value in order to program our intelligence gathering assets properly. It may be that the cost of validating the assumption is greater than the potential reward for knowing the fact and we’re better off just making our best assumption and moving on.

 

  1. maintain constant vigilance on the risk boundary: this idea resonates with the discipline of high reliability organizations (HRO), which recognizes that no plan can survive contact with reality and therefore we should position sensors at the boundaries of our plan to find out when we’re beginning to go off plan. This is the equivalent of an early warning system for adaptation.

 

 

  1. factor in velocity and momentum: this acknowledges that trends and momentum develop in human engagements and that they can shift an environment and its outcomes considerably in one direction once they begin. If you look at megatrends, there comes a time when they take on a life of their own and they dramatically shift our orientation. It may be a low probability of events at the time of planning but we must account for this phenomenon in social arenas.

 

  1. manage key connections carefully: this is a central idea of network management and net centric learning. By identifying the critical networks and the critical nodes within those networks we can find the most important intersections to focus our management and leadership attention. We can’t manage every note as if they are equal or we will neglect the ones that contribute the most to overall network performance.

 

  1. anticipate causes of failure: this is a common practice in manufacturing and automobile engineering but it can also be found in military strategic and tactical planning as well. We often develop plans based on our most optimistic estimates of what can happen because we want to reach for the brightest possible future. Identifying all the things that can go wrong and then designing a set of responses that are robust and effective will go a long way towards improving our overall success rate. In the military we call this wargaming. One of my graduate students and I are developing some ideas about peace gaming which is the same idea but applied to stability in nationbuilding operations. The central idea is the same. Just as we need creativity in the initial inspiration for a new  plan we also need to have creativity and identifying the potential fault lines.

 

  1. verify sources and corroborate information: in special forces operations, when we’re trying to assess the quality of information we assign it to different measures: reliability of the source and the probability that it’s true. When you rank each of these on a five-point scale you begin to get an appreciation of how vulnerable we may be too low quality or incomplete information. This is a concern for mammals with pattern matching brains which will tend to  use confirmation bias to give extra weight to things that confirm our beliefs. The process of fact checking and crosschecking its robustness to her strategies.

 

  1. maintain a margin of safety: I seen this one a lot especially in my financial management business when we are studying investment or trading opportunities and we have gathered all the facts that we can and we decide how much insurance we need to take out on our position for those variables that are beyond our awareness and or control. Calculating margins of safety that are effective is one of the most artful and important judgments leaders can make. Just within the financial markets we see a seasonality to risk in which some cases a 10% protective stop is sufficient to guard our capital against extreme events, whereas at other times you need 50%. Risk and volatility in the markets changes like the weather and in broader business climates it is the same.

 

  1. establish your time horizon: this is what good engineers do when they’re designing solutions that must be able to perform within standards for a set period of time. Sometimes we think are solutions are going to be timeless and then we get surprised when they begin to fall apart through time. Establishing your talk time horizon really describes how long your particular solution or strategy must be good for and it helps you focus on the kinds of threats and opportunities that will arise inside of that timeframe.

 

  1. take enough of the right kinds of risks: in the financial markets we say that the only sure bet in the market is that if you don’t play you’re going to lose. If you leave your money under your mattress you can bet that it will soon become worthless based on the grinding losses of inflation. The only way to stay ahead of inflation is to participate in growth, which comes with a set of potential risks based on your implementation strategy. The right kinds of risks are the ones that can be effectively described, measured, managed and accounted for and which offer opportunities for greater rewards on an expected basis. The right kinds of risks can be thought of as businessman risks rather than gambling. I find this risk management skill to be the absolutely essential skill for equity traders in the capital markets. With it, everything else can be trained; without it it’s only a matter of time until the trader explodes.

 

  1. develop and sustain operational discipline: this scale is concerned with turning these habits of mind into automatic behaviors and routine parts of every operation. It makes a nice segue to part three of the book which describes how risk intelligence might manifest in the typical organization. Checklists, procedures, failsafes, two man rule, redundancy by design, inspection programs, anticipatory maintenance: all of these things go into creating a culture of discipline risk intelligence.

 

This is an excellent book that incorporates a lot of good thinking about risk and reward that is applicable to a wide range of disciplines.

 

reflections on state funding for higher education

February 24, 2011 Leave a comment

Twitter Inc headquarters

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our cohort is looking at trends in state level funding for higher education and saw Arkansas proposing a plan to tie funding to short term measures of performance like class completion %, which triggered the following reflection on my part during our weekly discussions

1. state legislatures are tied to the annual and biannual budget cycle and election cycle. Statewide educational funding is one of the most important priorities and largest budget line items and one in in which they can make the state competitive for outside business. So there’s a natural urgency to do something about education at the legislature level.

Being tied such a short timeframe though is a challenge for them because they have to come up with metrics that are meaningful in their timeframe but which may not be suitable for assessing the impact of new programs over time. And so we get caught up in this series of short term projects on the margin, chosen simply because they are measurable and not necessarily because they contribute to a theory of deep learning.

2. if this were medicine, you wouldn’t expect to see legislatures defining standards of performance and measures of effectiveness in legislation to tell doctors how to do their job, which is very technical nature. You would expect them to rely on the medical profession to define measure and enforce reasonable technical standards. But because everyone has a belief about what they think constitutes good education and good educational outcomes, you see these kinds of technical specifications creeping into the language of the law. That doesn’t help us create effective learning programs. Simply adds another set of constraints. I think we have to decide to engage with them rather than just react to them.

3. on the subject of tools changing the tool user, just consider the effect of twitter on our higher cognitive processes. Twitter limits you to 140 text characters. This acts as a forcing function to make you say what you mean in short sharp clear simple text. But an academic scholarly paper of 30 pages has approximately 10,000 words or 50,000 characters, using the averages of 300 words per page and 5 characters per word. That’s the equivalent of 600-800 typical tweets.

The problem of course is that few of us write 600 tweets in the form of a complex nuanced scholarly argument. Tweeters get locked into superficial stream of consciousness dialogues that are one idea deep. Because it’s so easy to tweet around all day, we lose the capacity for uninterrupted focused attention which is both the blessing and curse of consciousness. By focusing on certain things we neglect other things. Tweeters, much like digital culture, thrive on short attention spans and superficial feelings.

We are much more like a nation of American Idol watchers than Masterpiece Theatre watchers, sadly. I don’t see that trend reversing. This further contributes to the development of the haves and have-nots: with the haves, having a culture of excellence and refinement while the have-nots live amidst their feelings.

it’s the bread and circuses of the digital empire

proponents of twitter in the classroom point out that it is a way to get people writing in small bursts. My concern is that there needs to be equal attention given to the construction of arguments and the power of rhetoric to persuade and to deconstruct other people’s arguments. Rhetoric works in both ways. It helps us make better arguments but it also helps us analyze.

Wisconsin Tea Partier calls for bloody reprisals against teachers, is castigated by the press

February 23, 2011 Leave a comment

Mike Capuano

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Oops, no, sorry.

I meant to say that it was an elected Democrat, who called for blood in protesting Wisconsin‘s governors actions, and so therefore, not a peep against this call fr violence.

I am shocked, shocked!

I really dont mind his rhetoric;  I actually agree with him in principle, which puts he and I in agreement with Thomas Jefferson; not bad company. It’s only faux leftist outrage that gets tiresome.

Sometimes it’s necessary to get out on the streets and “get a little bloody,” a Massachusetts Democrat said Tuesday in reference to labor battles in Wisconsin.

Rep. Michael Capuano (D-Mass.) fired up a group of union members in Boston with a speech urging them to work down in the trenches to fend off limits to workers’ rights like those proposed in Wisconsin.

“I’m proud to be here with people who understand that it’s more than just sending an email to get you going,” Capuano said, according to theStatehouse News. “Every once and awhile you need to get out on the streets and get a little bloody when necessary.”

Public employee unions shovel money to the Democrats: is that really news?

February 23, 2011 Leave a comment

Citizens registered as an Independent, Democra...

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Here is the money quote:

Follow the money, Washington reporters like to say. The money in this case comes from taxpayers, present and future, who are the source of every penny of dues paid to public employee unions, who in turn spend much of that money on politics, almost all of it for Democrats. In effect, public employee unions are a mechanism by which every taxpayer is forced to fund the Democratic Party.

So, just as the president complained in his 2010 State of the Union address about a Supreme Court decision that he feared would increase the flow of money to Republicans, he also found time to complain about a proposed state law that could reduce the flow of money to Democrats.

Read more at the Washington Examinerhttp://washingtonexaminer.com/politics/2011/02/public-unions-force-taxpayers-fund-democrats#ixzz1EqLp22Z2

 

Reflections on food and education in geopolitical ju-jitsu

February 22, 2011 2 comments

http://news.yahoo.com/s/ap/20110222/ap_on_re_us/us_wisconsin_budget_unions

continuing discussions over the role of funding & negotiating teacher salaries in Wisconsin  

And  after the quote below, one must wonder why the parents of Wisconsin school children should be so eager to get these teachers back  

In the National Assessment of Educational Progress tests administered by the U.S. Department of Education in 2009—the latest year available—only 32 percent of Wisconsin public-school eighth graders earned a “proficient” rating while another 2 percent earned an “advanced” rating. The other 66 percent of Wisconsin public-school eighth graders earned ratings below “proficient,” including 44 percent who earned a rating of “basic” and 22 percent who earned a rating of “below basic.” http://cnsnews.com/news/article/two-thirds-wisconsin-public-school-8th-g# 

while bonds of solidarity between unions begins to weaken http://www.nytimes.com/2011/02/22/us/22union.html?_r=1

Michigan is not far behind in re-organizing Detroit’s failing school system, as population dwindles and they see a need for consolidation http://detnews.com/article/20110221/SCHOOLS/102210355/1409/Michigan-orders-DPS-to-make-huge-cuts 

The overlap between political and economic elements of national power were never more clear than when looking at China using it’s Treasury holdings to leverage the US on policy issues. http://www.breitbart.com/article.php?id=CNG.ae2d2f54b4997246bb7b180d2736bac1.e1&show_article=1

North Korea’s centrally planned economy once again failing to provide even basic survival needs http://www.washingtonpost.com/wp-dyn/content/article/2011/02/19/AR2011021901953.html 

This gets directly to my post yesterday about the political dance required to intervene within the borders of a sovereign nation. Does anyone think it’s a bad idea to provide food and medicine to starving families in NK? Does anyone think it’s a good idea to give the supplies to the NK government without conditions on how it’s to be issued out? Especially since they are known to divert supplies to their favored constituents and even worse, re-sell it to other countries 

Russia claims Google is subverting Middle Eastern governments using their social media network outreach, and that the social upheaval can spread across the middle east and last for years

http://af.reuters.com/article/tunisiaNews/idAFLDE71L0DW20110222?sp=true http://news.yahoo.com/s/ap/20110222/ap_on_re_eu/eu_russia_medvedev

Futsal season concludes with our best games of the season

February 20, 2011 Leave a comment

really proud of our girls as they finished the season with a couple very well played, competitive games.

even at age 12 they are becoming more mature and focused in practice. they get rewarded by participating in what we will do in each practice, provided they bring energy to the game.

They usually like to scrimmage in small sided games so that they get lots of touchs. Since I incorporate technical training in all their warmups we still get a chance to refine their first touch, ball control skills and “quick feet”

Its gratifying to see them developing as people as well as in their mastery of the game