This blog is about professional  risk management in large scale. Its intended to provoke and raise some curiosity. The text contains my few subjective  takeaways from Douglas Hubbard’s book ”The Failure of Risk Management: Why It’s Broken and How to Fix It”. The book is an A class reading experience and can be highly recommended to everyone who is supposed to deal with risks and risk management. Its bound to change your views on the most common risk management practices and their pitfalls.

The problem

How often in your management/leadership team have these questions been asked:

  1. How do we know if our risk management methods are working?
  2. Would we notice if they were not working?
  3. What are the consequences if they are not working?

These are the three basic eye-opener questions from Douglas W. Hubbard’s best-seller “The Failure of Risk Management” to assess the state of the risk management processes. [1]

The majority of today’s risk management methods are based on a qualitative approach only. Risk management is often an activity that is done periodically in a closed room or in a risk management system with a limited number of people and competence, resulting in few updates to a risk list or risk matrix. Discussion and conclusions are often based on generalizations, hunches or gut feelings.

The researchers have found no empirical evidence that qualitative risk management practices improve overall corporate performance. Qualitative methods work only for the most obvious risks and since they are obvious, no risk management method is needed to deal with them. [1]

The way forward

When improving risk management, qualitative methods and expert communities and should be used. When community experts (potentially including customers and also suppliers) are involved, they always know something about the risk, even if it is just a general idea. Once this initial state is quantified and calibrated against reality, it is possible to narrow the risk down and continue iteratively. Quantification makes the data easily actionable and e.g. the history information from old projects can be easily leveraged. [1]

By proceeding step-by-step and utilizing all potential expert data, the uncertainty in the knowledge is gradually reduced. An incremental, probabilistic approach to gathering the necessary data lies behind a well functioning risk management process.

Involving all potential experts to the process and quantifying the risk items, together with the qualitative aspect is the most effective way for a leap forward in risk management. Furthermore, doing all this transparently and in real-time engages the experts best to the process and produces most value.

Link to Celkee

We have got feedback from our customers that the Celkee Insight solution is great for engaging all possible stakeholders to joint risk management. The solution a enforces clear focus and quantifies the risk probabilities. Furthermore, it complements the quantified probabilities with explanatory qualitative information.

This enables a quantum leap from the traditional risk management processes because:

  • the data coverage is better
  • there are more brains working with the risks
  • the risk management is a continuos and iterative process
  • the risk management is transparent and happens in real-time
  • it brings focus to management  & leadership activities
  • [1] The Failure of Risk Management: Why It’s Broken and How to Fix It, Douglas W. Hubbard 2009
Kimmo Vättö