Keeping risks in perspective: Eight steps to managing Black Swan Risks

To become effective at risk management we must understand how to manage, monitor and measure risk from a human point of view if we are going to get this process right. Here are the key principles for Governments or Commercial Organisations:

1. Think small. Think in manageable chunks. In computer science, a divide-and-conquer algorithm recursively breaks down a problem into two or more sub-problems of the same or related type until these become simple enough to be solved directly. Thinking small step by step can lead to effective solutions to apparently intractable problems.

2. Think velocity. We are living in a fast moving, integrated world. And it’s getting faster. If we can’t keep up with its speed we shall fail. But thinking about risk and how to solve a problem involving risk doesn’t mean panic. It means urgency. It means focusing fast.

3.Think about resilience. Are you tough and calm in a crisis? It’s a fact that human bones get stronger when subjected to stress and tension. Similarly, many things in life benefit from stress, volatility and turmoil. We need to build resilience to a new level. We can gain from chaos but also gain immunity when exposed to challenge and change.

4. Think radical. People are prone to talking about normal… in a crisis they say “when things get back to normal”… In my experience normal is a description of the past; you can’t turn back the clock; you must go forward. Radical is the new normal. An example of this was the successful speed of construction of the Nightingale Hospital at the Excel centre, London. Not normal. Just radical. One of our biggest risks is moving at yesterday’s pace.

5.Think failure. When I was young I remember a friend who deliberately broke his toys. He pulled them apart to see how they worked. We test cars by crashing them. We constantly run pressure stress tests to see how our financial systems will cope with a series of improbable crises. Thinking about failure means thinking about consequences. At the very centre of risk management is the need to measure the possibility of failure, monitor its consequences and decide how to mitigate and manage those.

6. Think ambitiously. Mark Zuckerberg’s power and influence is so huge we must take him and his businesses very seriously. His success commercially is underpinned by a clear philosophy about risk. “The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”

7.Think individual then local then national and then global. Build your thinking from the bottom up rather than vice versa. In a global economy we have tended to think “big picture” to the particular benefit of no one. Thinking about the big picture and globalisation leads us away from the most important thing of all… people and what they think and how they’ll feel and behave. Thinking about the big picture and globalisation leads us away from the most important thing of all…people.

8. Think people. If you think about people first I believe you ’ll be on course to help create a better, stronger, more resilient world. Because ultimately it’s still people not systems or ideologies or theories or algorithms that drive our world. It’s my belief in their resolve, resourcefulness and reluctance to be told what to do the whole time, that informs my views of risk in the human landscape.

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