Posts Tagged ‘risk’

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.

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Apple on rare ground

January 26, 2012
Image representing iPad as depicted in CrunchBase

Image via CrunchBase

I am both surprised and conflicted about my ability to come up with blog post titles that sound like newspaper headlines. It could be a very bad sign.

There does not seem to be much talk of rare earth metals these days. The headlines a couple days ago were all about how Apple once again exceeded its sales targets for iPads and iPhones.

However, below the surface are two big concerns of which I believe Tim Cook should take note (Tim, you can get my number from Pippa – afterward tell her to hit the little button that looks like a trash can). One, is that his biggest supplier of logic chips is also his biggest competitor (Samsung). I’m sure there is a wall – Berlin-style – surrounding the Apple portion of the factory and the factory for in-house production. And that the Apple-side employees have taken a lifetime vow of silence. However, in spite of these measures…something tells me there is a risk here.

The other is the whole rare-earth thing. Currently China is cranking out microchips with about as much regard for the environment as George Clooney has for his legacy. Descendants, seriously?! But that could change.

In fact, if South Korea (Samsung HQ is in Seoul) starts to get a little too frisky with their northern brethren, China has shown they are not averse to a little strong-arming (see dispute with Japan circa September 2010). There, always wanted to use circa in a blog post, and 3 of you will have picked up on the fact that I used it wildly incorrectly.

Definitely possible that Apple continues its dominance for years to come. Fortune, or world events, could dictate a different fate.

Good post on sustainability in procurement

June 15, 2011

Peter Smith at Spend Matters takes a look at the sustainability issue, and his thoughts are pretty much in line with those of the TPS report. There is nothing controversial in what he says, but for the environment at all costs crowd, there will be. Check it out here.

From an observer of business, as well as a participant, I do find these sorts of trends and kicks that rush through the world of business a bit amusing when taken from a historical perspective. The good news is that the sustainability kick is adding additional analytical tools and encouraging people to be more thorough in their analyses. The only note of caution that TPS report would like to strike is that sustainability is not some entirely new area of study.

There is a balance between these risks and other risks, and we need to take the whole picture into account. If we rush from one risk to the next, conducting deep dive analyses at every turn, we may lose focus on the big picture, up to and including focusing only on risk. Innovation from the supply base is another hot topic (if there is such a thing in the procurement world), so there is upside to be had through hard work as well.

It is also tempting to spot risks that come to fruition, and blame people for not seeing them. However, this is one of the chief ways in which people are fooled by randomness through selection bias (we hear about the risks that happen and are quick to blame, but don’t hear about the risks that don’t happen).

If Yoda were here, he’d probably say something like ‘unlimited, resources are not…focus wisely.’

Larry Page’s bias toward action

January 24, 2011

Risk is normally thought to stem from taking action before thinking something through. If only we would always run lots of information through the rational (as opposed to emotional) parts of our brain, we’d always make better decisions, right? Surprisingly, no.

Larry Page

Suit Larry? Nah...I'm good.

When there is no way to know what the outcome of a decision will be, the rational side of our brain will want to wait, delay, and seek new information. The only problem is that our brains will only absorb and process information that does not conflict with previously formed thoughts and opinions, and the new info wouldn’t hold any predictive power even if that weren’t the case. The decision is made…we just don’t know it yet!

There is another side of risk, one that Google CEO Larry Page understands very well…the risk of standing still. We applaud your efforts, Larry, especially given the field in which you operate.


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