Overview

The task of managing risks effectively is confounded by a classical paradox. That is, if risks are being effectively managed as a matter of routine, life can become boring. There will be very few surprises. Nobody becomes aware of just how effective risk management actions actually taken, have proven to be. Nobody slaps you on the back and congratulates you for a job exceedingly well done: in contrast, if something goes wrong and the whole world lines up to tell you so.

In risk management, today’s man-made situations are very frequently created in the days, months, or years before anything untoward is seen, meaning that risk cause-and-effect are not always proximate in time and space. Significant delays may be involved and the cause may not be within our immediate view, and the effect when it happens comes as a surprise.

The best that an effective risk manager can expect to achieve in the way of gaining kudos for their work is to follow-up a disastrous situation, to clean up the mess created by a predecessor. However, to think in such a way is both mercenary and selfish. Generally speaking, there is little kudos to be gained by being an effective risk manager.

This book starts with the hypothesis that effective risk management derives from being acutely aware of what is happening. Situation awareness verges on being a nervous state of heightened sensitivity to what is going on, and what might happen at some stage in the future. We might envisage ourselves sitting in the back seat of every car speeding down the highway on a foggy or rainy night. We sit nervously, and silently, watching the actions every driver dealing with the treacherous conditions. We may imagine an impending pile up, but like being in a nightmare we are unable to speak. We are only able to observe and wonder at the likely future events.

Preface

In the vast majority of situations, a manager does not have to be a technical expert to be an effective risk manager; he or she simply needs to be aware and sensitive to what is going on, and to be able to contemplate what may develop in the future. In essence, every decision maker needs to develop heightened situation awareness before he or she can become effective in risk management. This is the simple but powerful theme of this book.

Risk management is covered in many management texts and courses, most of which seem to start with the assumption that the reader, or attendee, is well equipped to recognise risky situations and identify individual risks. The research underlying this book suggests that the assumption that managers have detailed understandings of the nature of risks is at best, highly questionable and, at worst dangerous. The same research also suggests that the intelligent non-expert, a reasonable person, knowing or seeing what can be reasonably known or seen, can make reasoned and sound choices about risks and risky situations, often long before they develop into sinister consequences.

What we must do first is to spend time investigating, contemplating and deliberately learning about the true nature of risks. We need to know how risks grow and manifest themselves, either singly or in combinations. Only then might we be able to manage risks much more effectively.

How managers perceive and react to risky situations is as important, perhaps more so, than the actual risks they might be trying to manage. Risks that are identified but go untreated may produce the same final consequences as those that remain unidentified. The threat here is that managers through their inaction, or incompetence, might let the final undesirable consequences play out anyway.

Chapter 1 discusses the general nature of decision making and of risks and the role of the decision maker in the management of risks. Techniques to depict and analyse cause-and-effect, that is, causal relationships are demonstrated. A clear and strong distinction is made between correlation and causality.

Chapters 2 and 3 use empirical studies to reveal the circumstances and reasons for the ultimate occurrence of sinister consequences. In each case it was found that sinister consequences could have been avoided through routine but effective risk management. Based on the cases studied and material drawn from the systems-thinking literature, Chapter 4 builds characterisations of the nature of risks. Such characterisations are intended to help us recognise risky situations when they appear in real life situations.

Chapter 5 offers innovative and practical ways to establish the risk context and identify risks. A set of principles of method is developed to help us identify situations involving systemic risks and take appropriate remedial actions or put into place appropriate risk management strategies. Practical tools and techniques are explained that will make the risk management process more effective.

Chapter 6 presents a comprehensive tutorial that explains and demonstrates how to go about building real-life risk management interventions. The chapter also explains advanced techniques which might be needed if the qualitative techniques demonstrated in this book are insufficient. Chapter 7 relates the material in previous chapters to the generally recognised processes for risk management and problem solving.

This book is not about conducting forensic investigations to find the single root cause (if there is ever only one) for something going wrong or, as so often happens, apportioning blame to those who might have been closest to events when things went badly wrong. By the time undesirable consequences have played out, such as when a tragedy has occurred, or a business has gone bankrupt, it is all too late. This book is about seeking to understand risks for what they are and devising the most appropriate ways of treating them, hopefully producing situations where undesirable consequences do not result, or if they do their impact is markedly reduced.

The question this book set outs to answer is this: ‘how can managers, through routine management activities, mitigate the risks that might arise within their domains of action?’

Table of contents

CONTENTS
1	MANAGERIAL COGNITION AND CAUSALITY	1
1.1	A Paradox and a Polar Bear	1
1.2	Stakeholder Involvement in Risk Management	6
1.3	Need to Understand Managerial Cognition First	7
1.4	Mapping What We Know About the Problem at Hand	8
1.5	Knowledge Elicitation Based on Managerial Cognition	16
1.6	Importance of Communications in Decision Cycles	30
1.7	Dynamic and Complex Beyond Our Intuition	31
1.8	Developing Mental Agility	32
1.9	Superior Insights Lead to Superior Learning	33
1.1	Barriers to Learning and Effective Decision making in Dynamically Complex Environments	33
1.11	Systems of Knowledge-Power	36
1.12	Finding Out About A Problem Situation	37
1.13	Learning Opportunities Lost	39
1.14	Summary	40
2	WORST FAILURE—FAILURE TO LEARN ABOUT RISKS	43
2.1	More than a Simple Accident 43
2.2	Black Hawk Helicopter Crash—Case Study Overview	44
2.3	Insights Derived from Feedback Loops	58
2.4	Identifying Where to Apply Risk-management Effort	60
2.5	Focus on Critical Nodes	61
2.6	Breakdown in Management of Risks	65
2.7	Pitfalls and Pointers of Concept Mapping Practice	66
2.8	Summary	67
3	ROYAL CANBERRA HOSPITAL IMPLOSION AND FURTHER INSIGHTS	69
3.1	Events Gone so Horribly Wrong	69
3.2	Implosion Inquiry: No Simple Answers	71
3.3	Identifying Candidates for Quantitative Modelling	90
3.4	Value of Mapping	92
3.5	The Business Dynamics Context	93
3.6	Reflecting on Our Desire for Simple Answers	93
3.7	Failure to Learn—Far Too Common	94
3.8	Major Risk Key Performance Indicators	94
3.9	Observations About the Use of Concept Mapping as an Analytical Tool	95
3.1	Difficulties of Amalgamating Maps	98
3.11	Summary	99
4	COMING TO GRIPS WITH ‘WICKED’ PROBLEMS IN RISKY SITUATIONS	103
4.1	Reflection on Difficulties in Managing Risks	103
4.2	Brief Reflection on the Black Hawk Helicopter Crash	104
4.3	Aversion to Dealing with Excessively Complex Issues	105
4.4	Cognitive Dissonance	105
4.5	Cultural Impediments—Being Insensitive to Risks	106
4.6	Winning the Information Needed to Enable Analysis	109
4.7	Stakeholder Management	109
4.8	Why Complex Problems are Difficult to Manage	112
4.9	Characteristics of Wicked Problems and Strategies for Addressing Them	112
4.1	Summary	124
5	ADDRESSING WICKED RISK-MANAGEMENT PROBLEMS 125
5.1	Seeking Effective Problem-Solving Methodology	125
5.2	Systems Thinking and System Dynamics Modelling Principles—Keys to Understanding	132
5.3	Utility of Qualitative Analysis	135
5.4	Iterative and Interactive Strategy Development	136
5.5	Summary	145
6	APPLICATION OF IISD: A TUTORIAL FOR REAL-LIFE PROBLEMS	147
6.1	Disappointingly Ineffective in Managing Complexity	147
6.2	Tutorial—Preview	148
6.3	Nature of the Tutorial Problem—Brief Overview	149
6.4	The Directors’ Quandary	150
6.5	Putting ThreeTwoOne-Ready Back on Track—First Steps	150
6.6	Accommodating Stakeholder Perspectives	155
6.7	Working with Subgroups to Elicit Their Views of the Problem Situation	156
6.8	Production an ‘Executive Summary’ Concept Map	167
6.9	Analysis of Dynamic Behaviour Using Causal Loop or Influence Diagramming	170
6.1	Implementation and Monitoring	182
6.11	Pitfalls and Pointers Identified During Attempts at Solving ThreeTwoOne’s Problem	182
6.12	Reaction to IISD and System Dynamics Modelling	183
6.13	Summary	183
7	TAKING ACTION	185
7.1	Attitudes Constrain Awareness	185
7.2	Managing Complexity—Building a Multi-Dimensional Jigsaw Puzzle	186
7.3	Strategies for Building the Risk-Management Puzzle	189
7.4	Highly Desirable Elements of Risk-management Culture	191
7.5	The Risk-management Process	195
7.6	Navigating the Risk-management Process and Making the ‘Right’ Decisions	200
7.7	Vigilance and Continual Iteration	203
7.8	Taking up the Cudgel	203
	ABBREVIATIONS	205
	GLOSSARY	207
	REFERENCES	221
	INDEX	229

Sample Chapter

Download a sample chapter of Decision Making: Risk Management, Systems Thinking and Situation Awareness (PDF)