Beware the Hidden Risks in Business Analytics

By: | November 1, 2018 • 2 min read
John (Jack) Hampton is a Professor of Business at St. Peter’s University and a former Executive Director of the Risk and Insurance Management Society (RIMS). His recent book deals with risk management in higher education: "Culture, Intricacies, and Obsessions in Higher Education — Why Colleges and Universities are Struggling to Deliver the Goods." His website is www.jackhampton.com.

There was no way that competitors were a serious threat to Nokia at the turn of the 21st century. Its revenues and profits exceeded $20 billion and $2.5 billion respectively and 55,000 employees were making and selling mobile phones that dominated the markets of Europe, Africa and Asia. The once aggressive Motorola was fading. No competition came from Google as it concentrated on search engines. Samsung was a dull Korean industrial complex.

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Thus, we have one of the earliest examples of the misunderstanding of business analytic risk. Apple’s quirky Steve Jobs paid little attention to flawed data that forecast a limited market for smartphones. His success is an early warning sign of opportunities and risks arising from big data.

By way of background, business analytics can be traced back to 1908 and Henry Ford’s Model T automobile. Data was analyzed to help Ford build low-cost cars offering durability, versatility and ease of maintenance. Today, companies collect and analyze massive databases to obtain 21st century competitive advantages. Everybody’s in the game.

A recent count shows 137 U.S. colleges and universities offer degree programs in business intelligence, data science or business analytics. In all the programs, high-level programming languages, regression analysis and other powerful tools mathematically and visually describe relationships among independent and dependent variables. If we know causation or correlation, we gain a better understanding of how to take advantage of current trends and changing markets.

To win the race, we may need to pay more attention to the driver.

All of this is good until we introduce risk management. Many schools are taking a narrow mathematical approach to big data. They may not be preparing students to interpret data in the context of business processes and market behavior. Their students may not be encouraged to recognize that analytics produce more accurate results if they are developed with a curiosity about changing non-quantitative trends and behaviors.

Evidence to support this contention comes from factors including:

  • Massive Systems. We are linking data from financial, health care, credit cards and personal behaviors into a single database. The potential is enormous for complexity to destroy data validity and reliability.
  • False Accuracy. Quantitative tools often overpower the data. If we multiply 4 times 76.34715, we cannot claim accuracy to the level of five decimal points.
  • Limited Perspective. We do no one any favors teaching business analytics without a framework of business, psychology and critical thinking.

Identifying strategies based on prior statistical relationships is only valid when the analyst considers how current events might be changing the data. Absent this recognition, business analytics is making predictions about the past, not the future.

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Should we be worried when business analytics is analogous to a race track where owners are going ’round and ’round while constantly seeking new ways to outwit competitors? In this context, regression analysis is a Ferrari. The problem is not the vehicle. To win the race, we may need to pay more attention to the driver.

From a risk management perspective, schools should ensure programs in business intelligence and data science contain content beyond high-level programming languages and complex quantitative techniques. All work and no play makes Jack a dull boy. All regression and little understanding of the context of business and changing markets produces results that can be horribly misleading.

Just ask the energetic and talented managers who were forced into early retirement at Nokia.

In the Fast-Paced World of Retail, This Risk Manager Strives to Mitigate Risks Proactively and Keep Senior Leaders Informed

Janine Kral works to identify and mitigate risks, building strong partnerships with leaders and ensuring they see her as support rather than a blocker. 
By: | October 29, 2018 • 4 min read

R&I: What was your first job?

My very first paid job was working on my uncle’s ranch in British Columbia in the summers. He had cattle, horses and grapes — an unusual combo. But my first real job out of college was as a multi-line claims adjuster at Liberty Mutual.

R&I: How did you come to work in risk management?

Right out of college I applied for a job that turned out to be a claims adjuster at Liberty Mutual. I accepted because they were offering six weeks of training in Southern California, and at the time that sounded really fun. I spent about three years at Liberty Mutual and then I spent a short period of time at a smaller regional insurance company that hired me to start a workers’ compensation claims administration program.

I was hired at Nordstrom as the Washington Region Risk Manager, which was my first job in risk management. When I started at Nordstrom, the risk management department had about five people, and over the years it has grown to about 75. I’ve been vice president for 11 years.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

I would say that technology has probably been the biggest change. When I started many years ago, it was all paper and no RMIS.

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R&I: What risks does the retail industry face that are unique?

We deal with a lot of people — employees and customers. With physical brick and mortar settings, there are the unique exposures with people moving in and out in a public environment. And of course, with ecommerce, we have a lot of customer and employee data, which creates cyber risk — which is not necessarily a unique risk in today’s environment.

R&I: Can you describe your approach to working with senior leaders and front-line staff alike to further risk management initiatives?

It starts with keeping the pulse of what’s happening with the business. Retail moves really fast. In order to identify and mitigate risks proactively, we identify top risk areas and topics, and then we ensure that we have strong partnerships with the leaders responsible for those areas. Trust is critical, ensuring that leaders see us as a support rather than a blocker.

R&I: What role does technology play in your company’s approach to risk management?

Janine Kral, claims adjuster, Nordstrom

We have an internal risk management information system that all of our locations report events into — every type of incident is reported, whether insured or uninsured. Most of these events are managed internally by risk management, and our guidelines require that prevention be analyzed on each one. Having all event data in one system allows us to use the data for trending and also helps us better predict what may happen in the future, and who we need to work with to mitigate risks.

R&I: What advice might you give to students or other aspiring risk managers?

My son is a sophomore in college, and I tell him and his friends all the time not to rule out insurance as a career opportunity. My advice is to cast a wide net and do your homework. Research all the different types of opportunities. Read a lot — articles, industry magazines, LinkedIn. Be proactive and reach out to people you find interesting and ask them about their careers. Don’t be shy and wait for people and opportunities to come to you. Ask questions. Build networks. Be curious and keep an open mind.

R&I: What are your goals for the next five to 10 years of your career?

I have always been passionate about continuous improvement. I want to continue to find ways to add value to my company and to this industry.

R&I: What is your favorite book or movie?

My favorite book is Shantaram by Gregory David Roberts. It’s a true story about a man who was in prison in Australia after being convicted of armed robbery, and he escaped to India. While in India, he passed himself off as a doctor in a slum. It’s a really interesting story, because this is a convicted criminal who ends up helping others. I am not always successful in getting others to read the book because it’s 1,000 pages and definitely a commitment.

R&I: What’s the best restaurant you’ve ever eaten at?

Fiorella’s in Newton, Massachusetts. Great Italian food and a great overall experience.

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R&I: What is your favorite drink?

“Sister Carol.” I have no idea what is in it, and I can only get it at a local bar in Seattle. It’s green but it’s delicious.

R&I: What is the riskiest activity you ever engaged in?

Skydiving. Not tandem and without any sort of communication from the ground. Scary standing on a wing of a plane, but very peaceful once the chute opened, slowly floating down by myself.

R&I: If the world has a modern hero, who is it and why?

I can’t think of one individual person. For me, the real heroes are people who have a positive attitude in the face of adversity. People who are resilient no matter what life brings them.

R&I: What about this work do you find the most fulfilling or rewarding?

It’s rewarding to help solve problems and help people. I am proud of the support that my team provides others. &




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at kdwyer@lrp.com.