Column: Risk Management

Collective Intelligence

By: | November 2, 2015 • 3 min read
Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at [email protected]

A critical step to creating any risk management framework is risk analysis. Risk analysis comprises risk measurement.

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Discovering organizational risks has never been too problematic in my experience. The challenge tends to be around the risk quantification where we try to understand how big the risk is and when the risky event is likely to occur.

Here we tend to admit defeat. We feel that we have little clue as to the likelihood of risks. We throw our hands up in despair trying to predict the nature of the risk’s impact.

It doesn’t help that we read books like Nassim Taleb’s 2007 “Black Swan,” where the underpinning idea throughout the book says that humans should not attempt to predict outlier events known as Black Swans because human thinking is limited.

Humans only make predictions based on what they have already seen and experienced.

But with all due respect, I tend to disagree. After 18 years in this field I have successfully used tactics with some pretty remarkable results when it comes to risk measurement.

For me, the key is to never do risk measurement alone. I always get a collective opinion from a group rather than one single expert. Let the wisdom of a crowd prevail. Feed off their collective intelligence.

The notion traces back to the well-known finding of Francis Galton, a cousin to Charles Darwin, who in 1907 attended a country fair where about 800 people estimated the weight of an ox as part of a contest.

The average estimate was shockingly accurate. It was within 1 percent of the true weight — better than any individual guess of the cattle experts. The event is recounted in James Surowiecki’s “The Wisdom of Crowds.”

It appears that the average approximation of a group tends to converge towards a good result, often better than the response given of any one individual. But be aware. Group dynamics are tricky. I rely on two rules-of-thumb when facilitating a group: assure diversity and independence.

First, know the make-up of your group. Make sure you have legitimate subject matter “experts” in the crowd. Also, ensure representation from multiple areas within your organization.

It appears that the average approximation of a group tends to converge towards a good result, often better than the response given of any one individual.

If your risk measurement session is to discuss, for example, cyber security risks, ensure that the room does have participants from not only the IT department but from other divisions such as operations, legal, human resources and communications as well. All these groups see cyber risk from their unique vantage points and estimate risk using their own lens.

Also, don’t forget to invite a few organizational curmudgeons. To gain further accuracy, having those who may strongly disagree with your group is critical. In essence, you don’t want the group to start herding and copy-cat towards a consensus. The wisest groups are the most diverse, made up of diverse opinions and ideologies.

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Secondly, try to eliminate social influence and bias in a crowd. Group members should feel comfortable to contribute. Individuals need to feel their initial judgments are independent and are not influenced by other’s responses.

It may be a good idea not to have key contributor’s bosses in the room where they may sway their subordinates. In addition, do know that the more information participants get about each other’s responses, the higher the likelihood you degrade the collective answer — best to use secret ballots or electronic voting mechanisms.

So it appears the many are wiser than the few. Have a party and measure your risk.

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

As a professor of business, Jack Hampton knows firsthand the positive impact education has on risk managers as they tackle growing risks.
By: | April 9, 2018 • 4 min read

R&I: Who is your mentor and why?

Ellen Thrower, president (retired), The College of Insurance, introduced me to the importance of insurance as a component of risk management. Further, she encouraged me to explore strategic and operational risk as foundation topics shaping the role of the modern risk manager.

Chris Mandel, former president of RIMS and Risk Manager of the Year, introduced me to the emerging area of enterprise risk management. He helped me recognize the need to align hazard, strategic, operational and financial risk into a single framework. He gave me the perspective of ERM in a high-tech environment, using USAA as a model program that later won an excellence award for innovation.

Bob Morrell, founder and former CEO of Riskonnect, showed me how technology could be applied to solving serious risk management and governance problems. He created a platform that made some of my ideas practical and extended them into a highly-successful enterprise that served risk and governance management needs of major corporations.

R&I: How did you come to work in this industry?

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From a background in corporate finance and commercial banking, I accepted the position of provost of The College of Insurance. Recognizing my limited prior knowledge in the field, I became a student of insurance and risk management leading to authorship of books on hazard and financial risk. This led to industry consulting, as well as to the development of graduate-level courses and concentrations in MBA programs.

R&I: What was your first job?

The provost position was the first job I had in the industry, after serving as dean of the Seton Hall University School of Business and founding The Princeton Consulting Group. Earlier positions were in business development with Marine Transport Lines, consulting in commercial banking and college professorships.

R&I: What have you accomplished that you are proudest of?

Creating a risk management concentration in the MBA program at Saint Peter’s, co-founding the Russian Risk Management Society (RUSRISK), and writing “Fundamentals of Enterprise Risk Management” and the “AMA Handbook of Financial Risk Management.”

A few years ago, I expanded into risk management in higher education. From 2017 into 2018, Rowman and Littlefield published my four books that address risks facing colleges and universities, professors, students and parents.

Jack Hampton, Professor of Business, St. Peter’s University

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

The Godfather. I see it as a story of managing risk, even as the behavior of its leading characters create risk for others.

R&I: What is your favorite drink?

Jameson’s Irish whiskey. Mixed with a little ice, it is a serious rival for Johnny Walker Gold scotch and Jack Daniel’s Tennessee whiskey.

R&I: What is the most unusual/interesting place you have ever visited?

Mount Etna, Taormina, and Agrigento, Sicily. I actually supervised an MBA program in Siracusa and learned about risk from a new perspective.

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

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Army Airborne training and jumping out of an airplane. Fortunately, I never had to do it in combat even though I served in Vietnam.

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

George C. Marshall, one of the most decorated military leaders in American history, architect of the economic recovery program for Europe after World War II, and recipient of the 1953 Nobel Peace Prize. For Marshall, it was not just about winning the war. It was also about winning the peace.

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

Sharing lessons with colleagues and students by writing, publishing and teaching. A professor with a knowledge of risk management does not only share lessons. The professor is also a student when MBA candidates talk about the risks they manage every day.

R&I: What is the risk management community doing right?

Sensitizing for-profit, nonprofit and governmental agencies to the exposures and complexities facing their organizations. Sometimes we focus too much on strategies that sound good but do not withstand closer examination. Risk managers help organizations make better decisions.

R&I: What could the risk management community be doing a better job of?

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Developing executive training programs to help risk managers assume C-suite positions in organizations. Insurance may be a good place to start but so is an MBA degree. The Risk and Insurance Management Society recognizes the importance of a wide range of risk knowledge. Colleges and universities need to catch up with RIMS.

R&I: What emerging commercial risk most concerns you?

Cyber risk and its impact on hazard, operational and financial strategies. A terrorist can take down a building. A cyber-criminal can take down much more.

R&I: What does your family think you do?

My family members think I’m a professor. They do not seem to be too interested in my views on risk management.




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]