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Insight to Risk

A Free Risk Management Newsletter

July 2005
Issue 2

Risk in the Information Age








Location is now irrelevant!








Threat and Opportunity

















It's all about change!








Risk and Attitude











Big picture or detail?








Purpose, objectives and risk












Change rules our lives! From the split-second changes that must keep air-traffic controllers and sportspeople on their toes, to the day-to-day, month-to-month, year-to-year changes that affect decision-making in our personal and professional lives. Then there are the really big changes that occur every 500 years or so and take decades to complete; they govern the way the world and the whole human race develops.

The history of these big events and predictions for the current Information Age are excitingly presented in a book I read a few years ago, The Sovereign Individual by William Rees-Mogg and James Davidson. The authors speculate how the technological advancements of this age could create economic independence at the level of the individual and also how governments may have to adapt in order to maintain the nation-state as we know it.

The reality that the Information Age is truly with us was brought home to me a little while ago when I read that, during this year, half a million US citizens had their tax returns prepared in India. Then there was another article about UK school examination papers being marked off-shore, also in India. Apparently these service providers are fast, accurate and cost-effective.

Many of you will by now have had the experience of calling in a query to your bank or insurer only to realise you are speaking to someone in another country! Now it appears that some ICT specialists in Europe are complaining that their work is being out-sourced to South Africa. For these “soft” skills, location has become irrelevant!

So how do these changes create risk for you and how should you respond?

Remembering that risk is both threat and opportunity, you are going to be seriously disadvantaged if you do not see these changes coming or if you fail to think about the possible consequences. The fact that you can send bucket-loads of information in a few seconds to someone on the other side of the globe might just strike you as neat; but has it occurred to you that the whole world can now compete in your back yard?

This does not just apply to soft products. Marketing and logistics are being revolutionised by the new communications. People who previously supplied their biltong or pickled walnuts only to a local market are now selling world-wide. Subsistence farmers in rural parts of Africa are now getting their goods to the central markets, quickly and profitably, through the use of cell phone technology. A hard goods supplier in the US or Europe might find it more effective to have its website managed in Mauritius or South Africa rather than on-shore.

Of course, there is a whole swathe of security risks associated with electronic trading and communication. Identity theft and industrial espionage are hot topics; it was recently reported that someone in a UK bank’s offshore call centre had disclosed clients’ personal details. Numerous scams have been devised to steal credit card data and to get people to disclose account details. Companies are at risk to the loss of intellectual property and confidential strategy details.

Apart from individuals and businesses, governments need to consider a wide range of factors if they want their countries to capture a significant share of this type of market. Will the education and training environment produce the necessary skills? Do the labour laws and wage structures support competitive entry? Is the ICT infrastructure world-class and reasonably priced?

The key to effective risk management is to identify and attend to where the change takes place, the point of interaction, where the movement is. Refer this to each of your key objectives and evaluate how the change can help or hinder its achievement and to what extent. Then you can start to manage-down the uncertainty. There is more below in the Beginner’s Guide on this crucial step.


A Beginner’s Guide to Risk Management 2 – Risk in Context

I said in the first issue that risk management is simply about care and attention, about having your mind where the action is. Before we go any further, there needs to be some understanding about the nature of risk itself and how it is influenced by your own attitudes.

First, some elementary questions:
• What should you care about?
• What should you give your attention to?
• Where and what is the action you need to apply your mind to?

The need for care and attention arises naturally with the desire for a particular outcome. The more you want something, the more attention you will give it. However, achieving a particular goal usually involves accomplishing a number of subsidiary or related objectives.

The danger we face is two-fold. We either fixate on the ultimate aim instead of the task in front of us (the footballer pictures the ball in the net and takes his eye off the ball at his feet) or we get lost in the job we are doing and lose sight of the bigger picture (the same player so obsessed with his wonderful footwork that he loses direction and scores an own goal). Here are some examples that may help to show how these scenarios play out in your private and business affairs.

A company has made good progress in developing a product that could give it a significant edge in its market sector. Attention is given to the marketing campaign and reorganisation of the company to suit the new focus; launch dates are set and the development team is given ambitious deadlines but they are having problems in fixing some of the snags, which the bosses do not want to hear about. Meanwhile, customer dissatisfaction with some of the traditional products is being shrugged off – you can see where this goes…

Take a business that is doing well and needs new premises. The executives have different views on location, size, design, buy-or-rent, contractors, etc. Private agendas and power play take precedence over the vision, mission and business objectives and the company ends up with unsuitable premises and the loss of some key people.

In order to be able to keep our main purpose in mind whilst at the same time giving full attention to the activity in which we are presently engaged, we need to ensure that:

  • The main purpose and all other objectives are fully aligned in the first place;
  • We regularly review ‘the plan’ and check our progress;
  • When a number of people are involved, as in a business, everyone is committed to  ‘the plan’ and sings from the same song sheet.

So what has this got to do with risk? Everything! Risk does not exist in isolation. Risk only exists in relation to desires or objectives. If there is no wish to be alive tomorrow, there is no perceived risk attached to dying today. Once there is a goal or objective, even if it’s the hope that things will stay just as they are, there is some risk that the outcome will be different, because of uncertainty and inability to control.

A simple definition of risk is ‘exposure to the consequences of uncertainty’. Therefore a risk for you can be expressed as ‘the occurrence of an uncertain event that affects the achievement of an objective’.

To apply this principle in practice, you must first be certain about the main purpose, whether it is in respect of your life plan, your business, or a specific initiative. With this in mind, define the key objectives needed to achieve it. These may be already expressed in your business plan but check that they fully support the main purpose.

The possibility of deviations from those key objectives will be your first set of risks or ‘high level risk issues’. In the next issue, we will start to decompose the risk issues into ‘causes’ and ‘consequences’, thus giving us specific factors that can be examined in respect of uncertainty and ability to control.

Best Wishes,
Steve Winks.

Quote of the month: “When a man laughs at his troubles he loses a great many friends. They never forgive the loss of their prerogative.” – H. L. Mencken

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