Dead Reckoning and Risk Governance
Summary: Boards manage risk much as sailors used to navigate, through clumsy “dead reckoning.” Huge benefits come from more precision.
There is a navigational term called “dead reckoning.” It is taken from the period before radar and GPS. Back then, navigators used the sun and the stars to get from point A to point B, until point B got to within sight.
It worked as follows: Once you knew where you started from, knew where you were going to and knew your speed, you could use the sun and the stars to set your bearings and chart a course. There was always much uncertainty and large margins for error built into navigational estimates.
This is much like what risk governance looks like today. The weather is growing more uncertain and instrumentation is poor. Most available data is not current. It does not tell us where we are today. It is historic. It’s a bit like buying last month’s newspaper today. Interesting, useful, but not up to date.
In the board room solace, or concern, can be taken from management information. However, very many non-executive directors are nervous. They know that they are getting old news. They know that they carry the same fiduciary duties as their executive director colleagues but that executive directors have more up-to-date news.
The boardroom equivalent of the crow’s nest includes management and strategic information as well as a myriad of reports including those on risk. Taken together all are presented as something of a patchwork quilt of what today are highly networked ‘extended’ organisations. Such is the drive for efficiencies through outsourcing and partnerships that today organisations no longer have jurisdiction or control over all of the non-financial activities (i.e. the operations) that drive performance. To make matters worse, they live in a hyper-connected, multispeed, uncertain world where multiple things can have multiple impacts on reputation and business operations.
In the boardroom, there is an awful lot more uncertainty than certainty.
What Nassim Nicholas Taleb has told us is his seminal, spine-chilling works (Fooled by Randomness, The Black Swan, Antifragility, The Bed of Procrustes) is that not only are we buying yesterday’s news but that the news we are getting is hugely erroneous. He talks of the ludic fallacy, much of which is embedded in contemporary risk management practices. Practices which today are failing to comprehend the interconnected and interdependent relationships between multiple factors, for example:
1. Technology advancements, including the impact of AI on how things are done,
2. Rolling wave pandemics,
3. Run-away weather, and
4. Global Trade Tensions … to name but a few.
What Taleb is also telling us is that discontinuity is the new norm. And that the organizations that will thrive in the future are the ones that will take their energy from that discontinuity.
But how is this to be done?
From 35,000 feet, it looks like integration of risk, strategy and decision-making processes. At 100 foot it’s the story of internal alignment and cohesion.
Can organizations move beyond dead reckoning and get better instrumentation? Absolutely!
How this can be done is explained in Agile Risk Management (ARM) which describes the blended use of advanced technologies, agile practices and risk management thinking.
But, Rome wasn’t built in a day. Instead of contemplating yet another transformational project why not start small. Don’t allow yourself get caught up in the complexities layered into the different languages and ways of measuring things across finance, sales, IT, cyber, supply chain etc. Keep it simple, focus on common business objectives and crowdsource the wisdom of your front line decision-makers (P&L) and enablers. Using one standard easy to use assessment format:
1. List 2–3 business objectives
2. Ask people questions like what issues/risks/additional opportunities they can see and what they are doing about them,
3. Ask people to:
a. Rate their observations against thinks like:
i. Ability to demonstrate/evidence what they see,
ii. Levels of impact,
b. Indicate what’s most affected … provide practical drop-down lists of things like finance, operations, sales, IT etc.
c. Pick what SWOT bucket into which their observations fall into (many directors are familiar and use this tool from their strategy away days)
d. Indicate what top level actions make sense to them.
Assuming the clever use of technology and focusing on ease of use no training should be required. Using mobile devices seek to get ‘all hands on deck’ as quickly as you can with everyone moving to the same drumbeat
Starting small with a focus on getting early wins SoluxR offers Pulse Assessments which crowdsource much needed relevant information from inside and outside the organization to deliver actionable decision supports to management and the board.
Using the Pulse System SoluxR can help you get the actionable information for anything!
All you need to know is what initial point questions you wish to ask, and of whom. Point questions are topic-specific, for example around the state of play of business objectives cascading from top to bottom, competitor activities, supply chain resilience across boundaries etc.
As you get familiar with the system you can consider extending it more dynamically across the organisation.
The Pulse System Enables:
• Bottom-up and top-down free text language inputs crowdsourced and converted to a standard dynamic series of outputs
• Risk Assessments required to prove and test business assumptions
• Broad views about disruptive emerging risks
• Early indicators of what can accelerate or delay achievement of business objectives
If you are happy with Dead Reckoning stick with it. Or you can take a no-risk approach to getting today’s news today.
It’s super reliable, very fast, easy to use and reduces costs considerably.
