Posts Tagged ‘mind’

Acknowledging risks…ooh scary!

May 15, 2013
"John T. Raymond as the insurance agent i...

Random dude…I’ll bet you started to create a story behind this guy. (Photo credit: Wikipedia)

We are all irrational to some extent. That truth is undeniable. Fear affects our behavior whether we like to admit it or not. However, how we deal with that fear differs widely among organizations, which is affected greatly by the leadership in those organizations.

For a more thorough treatise on this topic, check out the McKinsey article on managing the people side of risk here.

I’ll take the lazy way out and add a couple random thoughts and experiences of my own. I have worked closely with a couple different organizations who are in similar situations with wildly varying standard operating procedures when it comes to risk. If risks were openly discussed with Organization A, the outcome of the conversation would be one of the following scenarios:

  1. The risk would be greatly exaggerated, and there would be a mad scramble to ‘fix’ the issue without regard to costs or resources. Blame would be assigned in a structured, post-event analysis. 
  2. The risk would be quickly dismissed as not valid if it was judged to be something requiring a top-level, systematic fix to which there was no readily apparent solution. Business would carry on as usual until the problem came to a head. There are no worse headaches than those caused by cognitive dissonance.
  3. Whoever raised the risk would be blamed for not having fixed it already as it fell under their area of responsibility. It would then be classified into either scenario 1 or 2.

In Organization B, there is a more rational approach to risk. Risks and assumptions are brought to the forefront. Sometimes, those risks would be acknowledged and accepted. Other times, an immediate fix was decided. In still other instances, there would be an acceptance of the current way of doing business as the cost would be too great to change, with a view to adapting in future decisions.

The important thing to remember is that in business, there is no such thing as a free lunch. Decisions that impact profitability are complex and do not involve easy solutions. The test? If they were easy, someone would have already figured out the way forward.

So what can we do? The first step is developing the mental discipline to overcome one’s gut reaction to hand out blame. Where issues are complex, our mind tends to distill the world’s randomness by creating stories, often assigning malevolent motives to people that, in fact, had no such motives. Understanding this tendency will provide some perspective, so that next time, risks can be openly discussed.

The next step is to choose which risks are truly the most important, and be relentless in finding and implementing the answer. If we swing wildly from one worry to the next, based on the randomness of one person’s perspective, we’ll be stuck in an eternal loop. However, if we pool our mental resources, talented people working together can do extraordinary things.

Big numbers, little comprehension

March 5, 2011

Is the CEO of your bank getting a bonus of $75 or $15 million?  What does this actually mean to our minds? Do we feel five times as good about receiving the 75 mil as we would about the 15…hell no. Human minds evolved during an era where resources and status were determined in ways that didn’t require a calculator.

I’m reminded of this whenever middle brows rattle off some number that is meant to impress me. Ok, where does that compare to other similar events? Where does that number fit within recent historical context? Often, people can’t answer these questions and the number means nothing to me. The media loves big numbers because people will read, or click, or buy a magazine based on them without thinking.

Part of the reason that this blog exists is to point out the irrationality in our human nature, and to make fun of it. Numbers provide endless entertainment. Those who proclaim stocks and bonds as too risky will gladly sign up for a massive mortgage. People who quibble over a $15 bar tab will blindly fork over thousands if it is for an “education.” Companies will ask their employees to steal pens, but sign up for millions of dollars in strategy advice.

No answers here, but shooting down your local blowhard just got a little easier.

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