Download - Ruminations on Risk and Reality
-
8/8/2019 Ruminations on Risk and Reality
1/21
Risk Communication Best PracticesLee Beachy 2009
1
Ruminations onRisk and Reality
A brief discussion about thechallenges of discussing risk.
Lee Beachy
Laconia Savings [email protected]
www.linkedin.com/in/lelandbeachy
1
It must be a matter of perspective!
2
-
8/8/2019 Ruminations on Risk and Reality
2/21
Risk Communication Best PracticesLee Beachy 2009
2
But! Calculated Risk = Profit
3
Risk & Profit Fuel Capitalism
4
-
8/8/2019 Ruminations on Risk and Reality
3/21
Risk Communication Best PracticesLee Beachy 2009
3
My Perverse History: Risk Voyeurism
Forensics can be fascinating!
My well-worn copy of the WarrenCommission Report (1960s)
Three-Mile Island (1970s)
NASA disasters (1987; 2003)
Challenger
Colombia
9/11 Commission / Twin Towers
NTSB Accident Researchhttp://www.ntsb.gov/Publictn/publictn.htm
5
A Few Basic Premises:
We canlearn from past mistakes
We canavoid bad things with better
communication
Sloppy communications dohaveconsequences
Hard to grasp realities can however still becommunicated
6
-
8/8/2019 Ruminations on Risk and Reality
4/21
Risk Communication Best PracticesLee Beachy 2009
4
The Risk Landscape of Banking
7
If you Alliterate, You Must Need a Logo
Effectiveness
Efficiency
Excellence
Ethics
8
-
8/8/2019 Ruminations on Risk and Reality
5/21
Risk Communication Best PracticesLee Beachy 2009
5
Effectiveness How do we communicate risk?
Theoretical, probable, conceptual, causal
The little known or the unknown (but possible)
The unwelcome
How do we arrive at actual risk? What we can know
What we can (but dont yet) know
What we can not possibly know
Snapshots, trends, critical factors,escalators, and summaries
9
Risk Perceptions
Factors that change risk perception: Dread
Degree of Control
Anthropogenic / Natural
Choice
Children
Novelty
Awareness
Personal Applicability
Benefit Tradeoff
Trust
10
-
8/8/2019 Ruminations on Risk and Reality
6/21
Risk Communication Best PracticesLee Beachy 2009
6
But Wait! There are still more
Cultural differences
Gender
Inter-generational
Language
Past experience
Anecdotes
Media preferences
Etc. Etc.
11
Risk Classification Schemes
The Old Standby: High, Medium, Low
Eye of the beholder [usually subjective]
No ability to quantify or calculate [nominal]
Ordinal, Interval and Ratio Schema Ordinal: Ranking (but still non-metric) More granular than HML
Interval: Numbers have relative meaning
Ratio: Numbers have absolute meaning
Develop a means of consistency!
Hard data is good to find!
12
-
8/8/2019 Ruminations on Risk and Reality
7/21
Risk Communication Best PracticesLee Beachy 2009
7
Elucidating Risk
How do we measurerisk? The risk analysis process is primarily based on
professional judgment. Macrae
Nonetheless, we have certain obligations:
Make judgments as explicit as possible
Keep ratings / rankings within a framework
Force assessments to the point of knowledge
Review / audit for collaborative perspective
Subjectivity can be tempered by use of ratingkeys containing clear definitions of value
13
Risk Language & Communications
Why are language and taxonomyimportant? Reduce inconsistencies
Reduce subjectivity
Support ERM objectives:
Risk awareness
Risk accountability
Risk action-ability
To really manage risk we must be able toarticulate, what is our risk tolerance?but most organizations do not have the metricsor the language to speak clearly to that question.
-
8/8/2019 Ruminations on Risk and Reality
8/21
Risk Communication Best PracticesLee Beachy 2009
8
The Dilemma of Uncertainty
Known (K) This risk can be identified, enumerated and
quantified
Unknown (u) This risk may be identified and enumerated but
can not meaningfully quantified
Unknowable (U) The existence of this risk or set of risks is not
predictable ex ante, let alone quantifiable
16
-
8/8/2019 Ruminations on Risk and Reality
9/21
Risk Communication Best PracticesLee Beachy 2009
9
17
18
-
8/8/2019 Ruminations on Risk and Reality
10/21
Risk Communication Best PracticesLee Beachy 2009
10
What are the lessons?
Non-financial risk has moreuncertainty
Our communication should not implymore
certitude than actually exists
We have some challenges! A primarily financial audience may need careful
guidance to understand non-financial risks
Make sure that risk assessment comes out of thebest possible source
Find ways to reinforce the informed expertise of
subject matter experts (SME) Communicate the reality of population
uncertainties! Confidence levels
19
The Confidence Interval
20
.4750 .4750
X
95%
.025.025
Z1.96-1.96 0
-
8/8/2019 Ruminations on Risk and Reality
11/21
Risk Communication Best PracticesLee Beachy 2009
11
Efficiency [Risk] communication should begin by
identifying the information most relevant tothe decisions that people face, finding outwhat they currently know, and filling in themissing pieces. Baruch Fischhoff ; Carnegie Mellon
Risk messages are difficult to formulate in
ways that are accurate, clear and not
misleading. National Academy of Sciences
21
Realistic Expectations
Many people, especially decision makers, seemto think that well-crafted messages orcommunication campaigns can eliminate orreduce conflicts in risk issues. These individualsbelieve that the conflicts are based on lack ofinformation, that if all the parties were made
aware of the facts, they would agree. Thisoverlooks the possibility that conflicts are basedon factors such as distribution of risks andbenefits, different values, and different goals.
Meaning of Data?
Acceptable Levels of Risk?
Applicability to specific domains?
22
-
8/8/2019 Ruminations on Risk and Reality
12/21
Risk Communication Best PracticesLee Beachy 2009
12
The Classic Communications Model
23
Yes, Its Complicated!
What Kindof Conversation is this?
Initiative Conversations get things started by proposing a new goal or a
new future.
An active and intentional approach to the future!
Understanding Conversations
support input from, and discussion, the peoplewho will work together toward the goal.
Performance Conversations are based on requests and agreements ask
and promise to get specific about who will dowhat, and by when!
Closure Conversations focus on recognizing accomplishment and
people and cleaning up unfinished business.
24
-
8/8/2019 Ruminations on Risk and Reality
13/21
Risk Communication Best PracticesLee Beachy 2009
13
25
Excellence A Framework for Risk Communication
Consistency
Clarity
Graphics, Diagrams & Representations
Appeal to Dr. Tufte! Few in number, fantastic in content
Appeal to Action or Decision
Let my dataset change your mindset.
26
-
8/8/2019 Ruminations on Risk and Reality
14/21
Risk Communication Best PracticesLee Beachy 2009
14
Relationship Matrix
SeverityFrequency
Catastrophic Critical Marginal Negligible
FrequentStop and fiximmediately
Stop and fiximmediately
Correct ASAP Correct soon
ProbableStop and fiximmediately
Correct ASAP Correct soonCorrect
sometime
Occasional Correct ASAP Correct soonCorrect
sometimeCorrect
sometime
Remote Correct soonCorrect
sometimeCorrect
sometimeCorrect
sometime
ImprobableRoutine
maintenanceRoutine
maintenanceRoutine
maintenanceRoutine
maintenance
27
An Example: {Ordinal-Interval}
28
-
8/8/2019 Ruminations on Risk and Reality
15/21
Risk Communication Best PracticesLee Beachy 2009
15
29
Priority-Driven Communication
Print &
narrative CSV of tool
output
VendorReport Data
Report byVariable
Follow-upResponses
Access Senior Mgmt
BoardCommittees
ExecSynopsis
30
Data Distillation
-
8/8/2019 Ruminations on Risk and Reality
16/21
Risk Communication Best PracticesLee Beachy 2009
16
31
31 Distinct Findings637 Separate Instances
93 Management Actions & Dates1 Page = Priceless
Paying Attention to Small Details!
Cascading Sequences can Devastate! Blockage in polisher (water filter)
Moisture leak into air system
Two valves trip cold water flow stops
Backup valves are not open (had been shut)
Backup valve indicator covered by repair tag
Special relief valve (second backup) sticks open
Special relief valve gauge also not working
What are we describing?Three Mile Island near meltdown!
32
-
8/8/2019 Ruminations on Risk and Reality
17/21
Risk Communication Best PracticesLee Beachy 2009
17
Watch Your Language!
The Effects of Language Mitigation Command
Obligation Statement
Suggestion
Query
Preference
HintSource: Ute Fischer & Judith OrasanuSee also Outliers, Malcolm Gladwell; Chapter 7
The challenge is in communicating eitherdangeror riskupward in a hierarchy Both personality andculture influence exchange
Reference: Geert Hofstedes Dimensions
33
Spectrum
Ethics Poor contextual landscapes
What do they need to know first?
Statistical slants Primary message of the data? Resist the partial
truth of misrepresentative data selections!
Misleading scalar graphics
Data distributions represented?
Risk Comparisons Can these risks be compared in a single
dimension?
Other bias situations?
34
-
8/8/2019 Ruminations on Risk and Reality
18/21
Risk Communication Best PracticesLee Beachy 2009
18
Risk Management or Controls?
Control Flavors Preventative
Detective
Corrective
Inherent Risks Residual RiskControls
Holistic Risk Management / Dialog
Encompass entire risk continuum Changing risks
Changing risk tolerances
Avoid control myopia
Inherent Risks Residual RiskControls
-
8/8/2019 Ruminations on Risk and Reality
19/21
Risk Communication Best PracticesLee Beachy 2009
19
About Statistics
Dont just take statistics as you find them
Use metrics with solid credibility
Favor whole numbers and simple fractions
Employ graphics and charts to present andclarify not to confuse or distract
Strive for comprehensibility and clarity But dont over simplify
Pay attention to other estimates and
understand variances
37
About Comparisons
First Rank Chronological comparisons (same risk)
Comparisons with a standard
Comparisons with different estimates
Second Rank Compare acting versus not acting
Compare alternate recommended solutions
Compare similar risk in other environments
Third Rank Compare peak versus average risk
Compare risks with benefits
Compare multiple causalities
38
-
8/8/2019 Ruminations on Risk and Reality
20/21
Risk Communication Best PracticesLee Beachy 2009
20
Helpful Links:
Harvard Center for Risk Analysis -http://www.hcra.harvard.edu/index.html
[CMU] Center for Risk Perception and Communication -http://sds.hss.cmu.edu/risk/Home.htm
[LSE] Centre for Analysis of Risk and Regulation -http://www.lse.ac.uk/collections/CARR/
Society for Risk Analysis - http://sra.org/
International Risk Management Institute -
http://www.irmi.com/
Information Presentation: http://www.edwardtufte.com/
FAIR Risk Metrics:http://fairwiki.riskmanagementinsight.com/
39
Sources / References:
Kuritzkes & Schuermann; What We Know, Dont Know andCant Know about Bank Risk: A View from the TrenchesWharton Financial Institutions Center;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=887730
Integrated Risk Management Framework; Treasury Board ofCanada Secretariat; http://www.tbs-sct.gc.ca/pol/doc-
eng.aspx?id=12254
Improving Risk Communications; Committee on RiskPerception and Communication, National Research Council;www.nap.edu/catalog/1189.html
Ford & Ford; The Four Conversations, 2009 Berrett-Koehler Publishers; ISBN 978-1-57675-920
40
-
8/8/2019 Ruminations on Risk and Reality
21/21
Risk Communication Best PracticesLee Beachy 2009
Familiar?
41
At which client did the CEO get thisphoto?Or is this intrinsically embedded marketing risk?
Questions / Discussion