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Moving from Process to Purpose, Risk Management after COVID19

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For delegate information only
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Risk Culture Builde...
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Boiling a frog!
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Moving from Process to Purpose, Risk Management after COVID19

  1. 1. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Risk Culture Builder Director- Risk, Strong Advice, UAE Advisor, Dubai Centre for Risk & Innovation, British University in Dubai Business Risk Officer, Capricorn Group, Namibia Former Director-Trainer, Moody’s Analytics COVID-19 Has Exposed the Weakness of Traditional Risk Management Strategies The COVID-19 pandemic demonstrates how vulnerable companies are to systemic risk events — and how limited our normal business risk management approaches are in these situations April 26, 2020 Dr. Mark Trexler CEO of The Climatographers
  2. 2. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Boiling a frog! Although frogs do not behave this way in real life, humans often do Boiling a frog! • The fable of the boiling frog provides a salutary lesson for business leaders. • In this apocryphal story, a frog placed in cold water remains in the water as the temperature is gradually increased to boiling. In failing to notice the gradual but real change in its circumstances, the frog dooms itself to a catastrophic ending. • Although frogs do not behave this way in real life, humans often do. • Neurobiologically conditioned, as we are, to pay attention to stark contrasts and sudden changes, we often overlook slow moving changes in our environments that may herald disastrous consequences Outbreak Readiness and Business Impact, WEF, January 2019
  3. 3. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Economists estimate(d) that, in the coming decades, pandemics will cause average annual economic losses of 0.7% of global GDP – a threat similar in scale to that estimated for climate change. Outbreak Readiness and Business Impact, WEF, January 2019 As this report makes clear, this is a level of risk that businesses can no longer afford to ignore. The Potential Impact of COVID-19 on GDP and Trade A Preliminary Assessment, World Bank, April 2020 • A baseline global pandemic scenario sees GDP fall by 2 percent below the benchmark for the world, 2.5 percent for developing countries, and 1.8 percent for industrial countries. • The declines are nearly 4 percent below the benchmark for the world, in an amplified pandemic scenario in which containment is assumed to take longer and which now seems more likely.
  4. 4. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk 2020 Projected change in GDP The world economy on a tightrope, OECD Economic Outlook, June 2020 From Process to Purpose
  5. 5. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk From Process to Purpose • Globally accepted Risk Management frameworks and practices are driven by process- thinking. • This approach is largely based on historic information and produce “backward-looking” results. • The actual contribution to the effective management of risk is limited • In many organizations, leadership’s traditional functional mindset represents one of the most significant barriers to change. • It reinforces a task-orientated focus and drives traditional command and control behavior. • Many organisations are still trying to innovate in the age of disruption--they will not be around for very long • For Enterprise Risk Management the future involves a mind-shift from Risk Management as a process; to the effective management of risk; mitigating negative risks and exploiting positive risks by everyone; at all levels of the business. • If you are still trying to Identify all the risks you are exposed to or spend endless hours converting historic data into useless risk reports in an effort to mitigate as much risk as possible for a green light on the road to taking less risk (for less reward); spending a fortune on controls and the digging of trenches for your lines of “defense”…. Fear no more! COVID-19 is a wake-up call. It would be a fatal mistake to hit the snooze button.
  6. 6. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk • COVID-19 is only one of many global risks that threaten our business world and existence. • Past warnings of a pandemic were often ignored, despite mounting evidence that countries needed to prepare for one. • We must overhaul our risk response strategies to protect ourselves from other this; and other global disasters. • All over the world, life as we know it has unravelled faster than we could ever have imagined. • In a few countries, the spread of COVID-19 itself is slowing, offering a glimmer of hope. • The Direct financial and economic impacts are too vast to quantify with all the unknowns • The socio-economic impact on the world’s most vulnerable people continues to worsen. • The pandemic has rapidly developed into the biggest economic crisis in living memory, causing the equity market to crash, business closures, job losses, a lock down of society, and for many, significant decline in earnings and an erosion of their savings. • It is already clear that the economic impact will be felt long after the virus has been contained COVID-19 is a wake-up call. It would be a fatal mistake to hit the snooze button. • The nature of risk in our society has changed dramatically. • Risk has become systemic. It can no longer just be divided into categories that are then assigned to different responders • Better risk response solutions are needed across public sectors such as water, sanitation and hygiene; education; health and nutrition; livelihoods; child and social protection; shelter and housing; and public open spaces. • To make things worse, several hazards may strike at once. Disasters have already coincided with the COVID-19 crisis: Croatia experienced a 5.5 Richter earthquake, and Vanuatu has been hit by a category 5 cyclone. • Pandemic Viruses do not respect the timelines of other disasters. They do not respect borders or politics. • This is why we need global solutions that will still work when we decide to re-open our borders. • Human activity has become the dominant influence on the environment and climate and the increased exposure to future risks are more evident than ever before COVID-19 is a wake-up call. It would be a fatal mistake to hit the snooze button.
  7. 7. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Unconscious Bias in Business • Unconscious biases are social stereotypes about certain groups of people that individuals form outside their conscious awareness. • Unconscious bias happens outside of our control. It occurs automatically and is triggered by our brain making a quick judgment • How can we reduce unconscious bias in the workplace? • If we aware of our own unconscious bias and are introduced to new processes and tools to minimize the effect of unconscious – we can enhance our decision-making processes substantially.
  8. 8. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Examples of Unconscious Bias in Business • Confirmation bias – selectively seeking information to back up an opinion that is already held without looking at the bigger picture • Halo effect – viewing one particularly strong positive trait about someone in a way that overpowers our judgement of them and can skew our ability to see any of their negative traits. • Gender bias – preference towards one gender over another which often comes from deep rooted beliefs about gender roles and stereotypes. • Affinity bias – an unconscious preference towards people who share qualities or viewpoints with us or with someone close to us. • Horns Effect – focussing on one badly perceived trait that can cloud judgement of the positive ones. • Beauty bias – a social behaviour that often adversely affects women in the workplace. For example, attractive women being viewed as less competent than their male counterparts and tall people being treated like leaders from their peers from a young age. • For some it was a total disaster and they are no longer in business • Some are still in the dark • Some learned some quick and good lessons: • Empowered their designated staff to make decisions without having to consult a bureaucratic governance body • Formed cross-functional teams that span across business, risk, compliance, operations, economists and evaluate the problem holistically with focused and coordinated responses • Took existing capabilities, re-purposed them into prototypes and continued to evolve (e.g. modelled the credit risk impact of primary sectors on static balance sheet before applying further assumptions) What happened on the Ground”
  9. 9. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Risk Culture after COVID 19. • Reflect and learn from organisation-wide mistakes • An organisation that learns from mistakes and shares knowledge across its teams is more likely to improve their risk culture maturity • Keep the balance between accountability and collaboration • We have witnessed large organisations transform in weeks, in what would normally have taken months or even years to achieve. One of the contributing factors to this is that people have been empowered to collaborate less, and use their accountabilities more • Adopt new leadership communication channels and 'over communicate' on expectations • Now more than ever, leaders need to ensure that their teams are receiving clear messages on what is expected of them in terms of the management of risk. • It is at this time when staff will be seeing less of, and interacting less, with their leaders. • Leaders must consider new approaches to communicating with their teams. • Foster a safe environment for staff to speak up and raise issues virtually • In an effective risk culture, staff have no fear of raising issues or concerns. • It takes a long time for an organisation to develop a culture where staff feel safe to speak up. Staff need to be able to trust their leaders if they are going to raise issues. Avoid compromising the quality of your decision- making process: 7 Factors to consider • Don’t structure data to fit a preconceived decision. • Don’t only rely and lean on the smartest or most dominant people in the room • Don’t focus too much on the risks everyone knows about. • Don’t extrapolate the past into the future. • Don’t draw false security from probabilities. • Don’t ignore the limitations of consensus. • Don’t manage toward a singular view of the future. Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60)
  10. 10. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Situational Awareness Response Execution Naturalistic Decision- making Mental Simulation • Risk Intelligence • Risk Nervous system • Competencies and skills All Rights Reserved, Horst Simon, The Risk Culture Builder The Management of Risk The (Disruptive) Radical Risk Management Process The Radical Risk Management process Situational Awareness Response Execution Naturalistic Decision- making Mental Simulation • Risk Intelligence • Risk Nervous system • Competencies and skills All Rights Reserved, Horst Simon, The Risk Culture Builder Everything in the legacy risk management process contribute to the intelligence system, only the decisions made drive the actual management of risk
  11. 11. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Situational Awareness • “is the perception of the elements in the environment within a volume of time and space, the comprehension of their meaning, and the projection of their status in the near future”; as defined in Endsley's model of SA. • -“Skilled behavior that encompasses the processes by which task-relevant information is extracted, integrated, assessed, and acted upon” (Kass, Herschler, & Companion, 1991). • “Continuous extraction of environmental information, integration of this information with previous knowledge to form a coherent mental picture, and the use of that picture in directing further perception and anticipating future events” (Dominguez, 1994). • Your competitors are dynamic, reconfigurable organisations that recognize and respond quickly to rapid changes in the marketplace Situational Awareness • Situational awareness is having an accurate understanding of our surroundings — where we are, what happened, what is happening, what is changing and what could happen; knowing what’s going on so you can figure out what to do, Collecting information from your surroundings and situation to improve your decision making and circumstances by: • Using your Risk Intelligence and Risk Nervous System • Monitoring the messages that others are providing through their behavior and communications, internally and externally • Being attentive to external and internal environmental circumstances that may indicate challenges, opportunity, or danger • Influenced by your WORLDVIEW and many other factors (fully covered in Risk Culture Building workshops)
  12. 12. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Mental Simulation • Mental Simulation is our mind's ability to imagine taking a specific action and simulating the probable result before acting. Anticipating the results of our actions improves our ability to solve new problems. Mental Simulation relies on our memory, learned via perception and experience. Josh Kaufman, The Personal MBA • Mental Simulation includes running imagery of the situation and the actions to achieve outcomes. Imagery is the set of mental visual pictures of oneself proceeding through a series of actions. Imagery can go beyond just pictures and incorporate the other senses as well. Research into the use of imagery indicates that it has positive effects including improving self-confidence, task completion, concentration, and coping. Effective use of the imagery technique has seven elements: physical, environment, task, timing, learning, emotion, and perspective. (PETTLEP: Dave Smith, Caroline Wright, Amy Allsopp, and Hayley Westhead, “It’s All in the Mind: PETTLEP-based Imagery and Sports Performance,” Journal of Applied Sport Psychology 19/1 (2007) Naturalistic Decision-making • Decision making involves assessment and choosing a course of action. • Decision making requires an understanding of the situation and controlled thinking. The situation determines the urgency of the decision, risks and limits of action. • The naturalistic decision making (NDM) framework emerged as a means of studying how people make decisions and perform cognitively complex functions in demanding, real-world situations. These include situations marked by limited time, uncertainty, high stakes, team and organizational constraints, unstable conditions, and varying amounts of experience. (Wikipedia) • Mindfulness is a key element in decision-making. Mindfulness is the idea that one should be present in the moment and acknowledge his or her own feelings, thoughts, and sensations. Arguably, mindfulness is linked to situational awareness. Research suggests that mindfulness increases memory and creativity. • The management of risk is not about implementing rules, it is most effective through changing the mindset
  13. 13. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk On Uncertainty and Decision-Making… "Uncertainty is the most difficult thing about decision-making. In the face of uncertainty, some people react with paralysis, or they do exhaustive research to avoid making a decision. The best decision- making happens when the mental environment is focused. …That fined-tuned focus doesn’t leave room for fears and doubts to enter. Doubts knock at the door of our consciousness, but you don't have to have them in for tea and crumpets." -- Timothy Gallwey, author of The Inner Game of Tennis and The Inner Game of Work.
  14. 14. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Features of Naturalistic Decision Making • Ill-defined goals and ill-structured tasks; nothing is ever perfect and predictable • Uncertainty, ambiguity, and missing data; everyone has data problems • Shifting and competing goals; the only thing constant in businesses today is CHANGE • Accept and prepare for dynamic and continually changing conditions • Action-feedback loops (real-time reactions to changed conditions) • High stakes; Time stress and an increasing environment of multiple players • Dynamic and Agile Organizational goals and norms exposed to rapid disruptions • A real need for Diligent Experienced decision-makers Naturalistic decision making • Naturalistic approaches seek to understand and aid decision makers under these conditions. • (Examples: pilots in emergency situations, firefighting, aircraft carrier crews …) • Several models, including: • Recognition-Primed Decision Making (Klein) • Skills, Rules, Knowledge Model (Rasmussen) • Decision Ladder (Rasmussen) • Analogical Problem Solving (Gick and Holyoak) • Basic Idea: • Solve the current problem by recognizing that it is similar to some previous problem(s) and applying or adapting a previous solution. • Relies on a strong perceptual-recognitional component that is holistic, parallel, and contextual. • Emphasizes situation assessment : Identifying and clarifying the current state of the world, including the goals and assumptions.
  15. 15. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk The strategies for managing positive risks (opportunities) are: • Pursue: Accept the opportunity, take the advantages provided by the event, but do not actively pursue the event. • Optimise: Enhance the probability and positive impacts of the event. • Exploit: We will do whatever we can to make sure the event does happen so we can enjoy the rewards of the event. • Share: the ownership with a third party who can better enhance the situation e.g. Joint-Ventures Risk response Developing responses for negative risks: • Avoid: Changing the project plan to eliminate the risk. Could involve changing the objective, modifying the schedule, or reduction in scope. • Mitigate: A reduction in the probability or impact to the project. Taking early action to reduce the probability, adopting less complex processes, or conducting more tests. • Transfer/ Insure: Shifting the risk to a third party for the management of the risk. Does not eliminate the risk, could involve insurance, warranties, bonds. • Accept: It is possible that the risk cannot be eliminated or managed. Can be active or passive in approach – a contingency reserve in time, money, or resources. Risk response
  16. 16. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Response Execution • Once these steps are complete and a response has been selected; the response, or action, must be executed. Correct and effective execution requires smooth and timely coordination to achieve the desired result of optimizing the risk to get maximum benefit for the organisation. The availability of resources also affects a response and inadequate attention results in ineffective execution. • Peak Response Execution is an action(s) of optimal cognitive, emotional, and physical functioning. Cognitively, people are at their peak when they have focused attention, ignoring unimportant things and allocating brain power to the task at hand. Warfighters performing at their peak can better assess the situation, make decisions, and perform the right tasks at the right time. 1. Ready. Fire! Aim. 2. If it ain’t broke ... Break it! 3. Hire crazies. 4. Ask dumb questions. 5. Pursue failure. 6. Lead, follow ... or get out of the way! 7. Spread confusion. 8. Ditch your office. 9. Read odd stuff. 10. AVOID MODERATION! Kevin Roberts’ Credo Kevin Roberts, CEO of Saatchi and Saatchi
  17. 17. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Horst Simon, Risk Culture Builder chungarisk@yahoo.co.uk horst@strongadvice.ae Linked In Profile: http://www.linkedin.com/in/horstsimondubai Linked In Groups: https://www.linkedin.com/groups/4066904/ https://www.linkedin.com/groups/8676327/ Twitter: https://twitter.com/RiskCultureBldr Facebook: https://www.facebook.com/RiskCultureBuilders https://www.facebook.com/DubaiCentreforRiskandInnovation IRM’s Paper on Risk Culture: http://www.theirm.org/knowledge-and-resources/thought- leadership/risk-culture/ Websites: www.strongadvice.ae www.geniusmethods.com Annexure 1 Avoid compromising the quality of your decision- making process. 7 Factors to consider • Don’t structure data to fit a preconceived decision. • Don’t only rely and lean on the smartest or most dominant people in the room • Don’t focus too much on the risks everyone knows about. • Don’t extrapolate the past into the future. • Don’t draw false security from probabilities. • Don’t ignore the limitations of consensus. • Don’t manage toward a singular view of the future. Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60)
  18. 18. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Don’t structure data to fit a preconceived decision • Ultimately, managing risk is about seeking the truth, even when it hurts. Consider the catastrophic 2011 tsunami in Japan, which caused a meltdown of three nuclear reactors. The earthquake model used by the operator’s engineers was based on empirical data dating back to 1896 and disregarded scientific evidence asserting that an earthquake of the magnitude that caused the 2011 tsunami was, in effect, a one in 1000-year event. • A model based solely on just over 100 years of data will not offer much insight regarding a one in 1,000-year event. • Had the additional scientific data been considered or a different question been asked regarding the consequences of a catastrophic wave hitting the plant, the nuclear power operator would have faced the option of considering formidable investment decisions to mitigate the risk. Geological time is impervious to arbitrary assumptions. Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60) Don’t only rely and lean on the smartest or most dominant people in the room • Allowing the experts and dominant personalities to drive a divergent conversation to convergence too soon is a common mistake. • Get the real facts and perspectives out, do not focus on opinions only • Make sure that everyone’s opinion is heard and valued. Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60)
  19. 19. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Don’t focus too much on the risks everyone knows about • Spend more time “looking through the windscreen” than discussing dashboards and reports • Assessments directed to cataloging known risks are not going to generate new insights for management and the board. • Think about what the organization doesn’t know. • Focus the company’s risk assessments more on circumstances or potential outcomes that reflect new realities and have not been considered by the organization Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60) Don’t only extrapolate the past into the future • Most of the information in reports are limited to historic perspectives • Weighted in models with management overlay are the most useful, but still ask questions • Change is not linear • Unknown, unknowns can be dangerously disruptive • Stuff happens Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60)
  20. 20. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Don’t draw false security from probabilities • Acknowledge that no one can predict the future with certainty. • Playing numerology with probability estimates that are, at best, mere guesses can create a false sense of comfort with “what the numbers say” that does not make the threat of a plausible, extreme risk scenario go away. • That is why a high-impact, high-velocity and high-persistence threat warrants an assessment of an organization’s response readiness. If response readiness is low, a focused response plan may be needed. Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60) Don’t ignore the limitations of consensus • In traditional risk maps, a single point on the grid results from aggregating divergent views. • It is possible that one of the divergent views could be more “correct” than others; therefore, the group should determine whether outlier views are a result of important information the rest of the group doesn’t have. • E.g. In a risk workshop the outcome is a consolidation of the perceptions of the participants and agreement on a “syndicated” viewpoint. Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60)
  21. 21. For delegate information only For commercial use licensing contact Horst Simon. chungarisk@yahoo.co.uk Don’t manage toward a singular view of the future • Given the complexity of the business environment, executives should avoid the kind of overconfidence that is often driven by past success. It is common for leaders to make bets based on what they see in the future. But for the big bets that matter, what if they’re wrong? • “What if” scenario planning and stress testing are tools for evaluating management’s “view of the future” by visualizing different future scenarios or events, what their consequences or effects might be, and how the organization can respond to or benefit from them. • Their use can transform a risk discussion into a business discussion. Partly adapted from: Protiviti Board Perspectives: Risk Oversight (Issue 60)

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