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Elements of Risk – Part Two
by Rod Johnson

In Elements of Risk – Part One, I started of with, “Contaminated Vegetables. Product Recalls. Biotechnology. Nanotechnology… Possibly the singly most important interface every problem encounters is risk. Yes, problems and risk are intrinsically linked to each other.”

Today, our industry is reeling from a massive petfood recall which is evidently associated with tainted wheat gluten from China. Did these companies adequately assess the potential problem and the inherent risk?

The answer to this question will hopefully surface over time but in general, how we determine/evaluate risk associated to a problem (real or potential) tends to be challenging for most. Inherently, we’re really just not that good at it. Some might revert to their personal experience relating to a problem. Others might allow ego to lead the way at times. For others, it may be gut instinct. Research & Analysis may be the core method for others. Still others might employ a risk-modeling program or bring in an industry expert to help solve the problem. Each is inherently focused on solving the problem and assessing risk. However, as you can probably deduce, some individuals are simply more effective than others.

When we begin to challenge our own risk assessment capabilities, we tend to move a step closer to determining how effective we are at problem solving. Another means of tackling this issue is by starting to ask a few questions. For instance,

  1. Is this problem new, old or recurring? If it’s a recurring problem, what’s different about this problem today in comparison to the past? Is this new information relevant?
  2. How relevant is your experience to the problem/risk you’re evaluating?
  3. “How accurate are the assessments of the problem that you’ve received?
  4. How expensive (i.e. time, money, personnel…) is the perceived problem today? If left unresolved, what would the potential impact be in 1 week, 1 month, 1 year?
  5. On a scale of 1 to 10, how effective has your organization been in solving similar problems and properly assessing their inherent risks?

Obviously, there is no “one size fits all” answer here. Every problem varies in scope and importance. Every problem holds known and unknown challenges. Every problem is unique. And therein is another dimension of the “Problem with Problems,” because too often, we simply aren’t that good at assessing the risks associated with a problem. Author and security expert Bruce Schneier analyzes risk for a living. In his November 16, 2006 Crypto-Gram Newsletter he references his book, Beyond Fear (pages 26-27) about perceived vs. actual risk. He states that:

People exaggerate spectacular but rare risks and downplay common risks. They worry more about earthquakes than they do about slipping on the bathroom floor, even though the latter kills far more people than the former.

People have trouble estimating risks for anything not exactly like their normal situation. Americans worry more about the risk of a mugging in a foreign city, no matter how much safer it might be than where they live back home.

Personified risks are perceived to be greater than anonymous risks. Joseph Stalin said, ‘A single death is a tragedy, a million deaths is a statistic.’ He was right; large numbers have a way of blending into each other.

People underestimate risks they willingly take and overestimate risks in situations they can’t control. When people voluntarily take a risk, they tend to underestimate it. When they have no choice but to take the risk, they tend to overestimate it.

People overestimate risks that are being talked about and remain an object of public scrutiny. News, by definition, is about anomalies. Endless numbers of automobile crashes hardly make news like one airplane crash does.

At the core of every sound problem solving scenario lays a good risk assessment evaluation. This must ultimately determine which risks are big, which are small and most importantly, which we’re not very good at evaluating, much less solving. In essence, a poor risk assessment on the front end too often leads to weak problem solving on the back end. This is apparent in the case of the tainted wheat gluten. It took days and weeks for every company that had purchased the wheat gluten to send out a message to the public similar to this,

“Houston, we’ve had a problem here.”

Yes, the consequences of weak risk analysis can be profound. And as we speed down the path to globalization, risk is compounded. And if we fail to “listen,” what will the consequence be? Just maybe, one day we will wake up with the realization,

Oh my gosh, the world doesn’t work the way I thought it did. Now what?

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