Risk Insider: Chris Mandel

Predicting the Unpredictable

By: | May 15, 2017 • 3 min read
Chris Mandel is SVP, strategic solutions for Sedgwick and Director of the Sedgwick Institute. He is a long-term risk management leader and a former president of RIMS. He can be reached at [email protected]
Topics: Risk Insider

One thing that has become commonplace in the last 15 years is the unexpected: 9-11 was unexpected. Hurricane Katrina was unexpected. The rise of ISIS was unexpected. Target Corporation’s point of sale hack, now valued at more than $1 billion total impact, was unexpected. Donald Trump’s 2016 election to president of the United States was unexpected (just ask Hillary Clinton).

Thus the unexpected, or commonly considered “emerging risks,” are now less unexpected. Another way to think about this is that those “black swans” that were at one time unknown to exist, have increasingly been discovered in their hiding places, often too late to prevent and sometimes too late to effectively mitigate their impact.

While most risk practitioners have come around to agreeing that one of the better synonyms for risk is “uncertainty,” there is little agreement about how to better get ahead of the new reality of this increasing uncertainty.

We must become more capable of fulfilling the growing expectation of being reliable, strategic advisors to management and governance in ways that directly and indirectly improve the chances of success through mission accomplishment.

Yet the most common question I used to receive from senior management and boards was “tell me what I don’t know or can’t see or have no idea is coming that could destroy the plan or even the organization itself.”

Perhaps they thought I had a crystal ball? I did not; I do not.

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And so risk leaders are increasingly challenged with the expectation of identifying and addressing those risks that few, if anyone, can see or understand and yet can either be massively destructive or, on the flip side, sizable lost opportunity.

A paucity of information is usually a key hurdle. Reluctant risk ownership is another. Convincing decisionmakers of their relevancy can be the showstopper, especially in our common environments of constrained resources. Yet as risk leaders, we are expected to be strategic and have vision for things others can’t see or even imagine.

Scenario and stress testing may be helpful. Monte Carlo simulations may be less so. This by its very nature is a challenge that I think calls for more qualitative than quantitative solutions, more acceptable in some environs than others — less scientific, more nuanced. Both will be important to the solution.

No matter the magnitude of the challenge, the big win for risk leaders of the future will be the ways in which uncertainty can be lowered by reducing the number and impact of unexpected risk events. While no small task, with emerging tools such as those enabled by artificial intelligence (AI), we can do this.

We must become more capable of fulfilling the growing expectation of being reliable, strategic advisors to management and governance in ways that directly and indirectly improve the chances of success through mission accomplishment.

This does not mean we must have the precisely right answer to every potential risk. It does mean we need to improve management’s understanding and awareness of the possibilities and what can be done about them, moving measurably beyond the probabilities that have normally been undergirded by historical data enabling reliable prediction.

We can do it. We will be expected to do it to earn our keep. We must do it to validate the discipline as the true profession to which it has for so long aspired.

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6 Risks for the Construction Industry

Drag and drop the tiles below to arrange them in your prefered order of most concerning risk (#1) to least concerning risk (#6). Then press "Submit Rankings" to see the summary results.

1
Shifting Workforce
2
Construction Defect
3
Contractual Risk
4
Overextension
5
Fire
6
Site Protection