Risk e-Views Vol 36 November 2013 – Risk Leadership: Risk – What It All Boils Down To

Earlier this year I read Administrative Behaviour by Herbert A. Simon which was first published in 1946.  I highly recommend Simon’s book for risk professionals because it only mentions risk a few times, yet it describes so clearly the challenges of organisational success. 

When you consider the challenges Simon sets out, it helps clarify how risk professionals should aim to assist organisations through the application of risk management principles and processes.

In a nutshell, Simon describes the basis of an organisation as:

•    A well-defined purpose communicated to staff and other stakeholders.
•    A series of decisions that affect actions.
•    Policies, processes and systems to influence the decisions.

In another nutshell, Simon describes the challenge of organisational success as:

•    The larger the organisation, the more open to interpretation and errors in communication of policies, processes and systems.

•    “The problem of choice (making a decision) is one of describing consequences, evaluating them, and connecting them with behaviour alternatives.”

•    Decisions are affected by emotions.

•    “… all decision is a matter of compromise.”

•    The actual outcome of a series of decisions in any sized organisation is impossible to predict.

So what is a risk professional trying to achieve?  He or she is trying to assist staff with decision-making under uncertainty and to enhance the communication of decisions AND the uncertainty around them to those in the organisation that need to understand them IN TIME for them to be able to act if required.

So when you talk about the maturity of a risk management program for your organisation, you need to ask yourself: Are you delivering for management a risk intelligent workforce with sound communication channels or are you simply delivering some processes that people feel compelled to follow to meet their personal KPIs?