Risk management as a discipline is well established. Yet boards frequently fail to see or act on risk which ultimately leads to crisis. Is this a failure of process, people or perception? There is growing evidence that it is perception: managing risk is like waging war on terror or catching clouds, an impossible Sisyphean task doomed to fail through unrealistic ambition.
Risk is a personal opinion of a future outcome and perception varies widely between individuals across the optimist-pessimist spectrum. Predicting the future is a fool’s game as there are only two possible outcomes: lucky or wrong. Boards don’t like to predict the future as they know the odds of getting it right are stacked against them; foresight as a skill is not practised or encouraged.
Risk is missed because the corporate future belongs to strategy and the optimism bias inherent in convenient assumptions of a profitable and rewarding future. There are many reasons risks are not seen either through myopia or wilful blindness, ranging from hubristic arrogance to downright incompetence. A study of risk-related crises over recent years suggests that people and systems can only act on what they see.
Public health risk from a novel virus featured on the national risk register prior to 2020, the authorities had it on their radar and knew the danger. Novel virus strains had been contained successfully in the Far East so it was assumed outbreak probability in the UK was low. Once probability increased in February 2020, the necessary public safeguards were found wanting. The risk was seen but downgraded based on assumptions about probability which proved wrong.
There are many different reasons risks get missed apart from downgrading. Some are simply misunderstood and under-estimated, some are totally unexpected due to the connectivity of events, some are the result of deferred decisions and procrastination, some are the result of board distraction and inattentiveness.
My new book ‘Missed Risks’ identifies several types of unseen and unspoken risks in an attempt to show boards where risk perception is critical. Hindsight is a wonderful thing but decision makers need greater vigilance and sharper risk perception. Remember, risk exists to ensure we make good judgements; the key is a balanced view of the future based on reducing uncertainty.
Garry Honey is the founder of Chiron Risk