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by Matthew Leitch
(This article first appeared under the title "The Matthew Leitch Column: 'Uncertainty': 'risk' without the attitude" in Emerald Insight's publication "The Journal of Risk Finance incorporating Balance Sheet", volume 6 number 2, 2005.)
Don't worry. This isn't one of those pedantic articles that tries to redefine risk or uncertainty for reasons of interest only to the most theoretically inclined risk managers.
This is about the effect that different words have on people who are not risk managers but need to contribute to a corporate risk management effort.
If you have ever tried to lead a meeting with managers where they have to think about risks and how they are being managed you will know that people tend to ignore the instructions you give them.
You ask for "risks" and they usually start talking about things that are a problem now i.e. about issues. If you want people to bear in mind unexpectedly good outcomes as well as downside risks you probably found it incredibly difficult to get people to do anything other than list potential failures. Try asking for "opportunities" and they give you things that are currently available actions, not things that might open up in future. Try asking for "upside risks" and something seems to happen in their heads so that what they hear is you asking for "risks".
Frustrating, especially if you like things to be just right.
A big factor in the success of these meetings is how you deal with this issue. Sometimes people tackle it with sentence templates, training exercises, and rules requiring two- or even three-stage causal chains to be specified.
One risk manager I know takes the opposite approach. Instead of trying to get people to do something that is hard for them he does a quick exercise to demonstrate that it is enough to talk about anything that is a worry, and trying to make finer distinctions is largely a waste of time.
Recently I carried out an experiment to study another way of giving the instructions and the results are evidence of another potentially useful approach.
The study was done online. Volunteers who participated were first given a choice between four scenarios likely to be familiar to most people. This was to ensure that respondents would be working on something they had some knowledge of. (The most popular scenario was "Building an extension to your house" while the least popular was "Planning a wedding.")
They were then asked to make a list of either (1) "risks", (2) "sets of risks", (3) "risk factors", or (4) "areas of uncertainty." The instructions gave no explanations of these terms, but the phrases were used three times in the instructions. Participants were also asked to suggest actions that might be taken on each. Their suggestions were analysed in various ways.
All the instructions that mentioned "risk" produced roughly the same behaviour - a list of bad things that might happen and ways to fail. This happened even when people were asked for "risk factors", showing that all participants given these instructions either did not notice the word "factor" or did not know what was meant.
There was just one exception to the generally grim approach of "risk", and this was due to the scenario, not the instructions. The "Buying a company" scenario seemed to nudge people into due-diligence mode and led to them listing areas where they would want to find out more.
In contrast to instructions mentioning "risk", asking for "areas of uncertainty" caused many participants to behave differently, writing things that were not inherently good or bad - just uncertain.
They also went on to list a slightly higher proportion of actions that involved finding out more or doing more analysis.
There are two main reasons why you might want to ask people for "areas of uncertainty" instead of "risks."
First, if you are trying to get people to think about unexpectedly good things that might happen as well as the bad things, "uncertainty" is helpfully neutral. For example, Professors Chris Chapman and Steve Ward of Southampton University advocate its use in project risk/uncertainty management for this reason.
The results of my experiment support this argument.
Second, if you want to make people more aware of their uncertainty then using the word highlights this aspect of the risk concept. The experiment also supported this argument.
People have a blinkered view of the future, and when you help them take the blinkers off risk management suddenly seems a lot more worthwhile.
Most organisations now have a template to guide employees when they write business cases e.g. for a project or product. Many templates have a heading for "Risks" and ask people to list risks and what they propose to do about them, or have done already.
This seems like a fine idea but take a look at what people actually write in this section, particularly in early drafts before negotiations have been concluded. Many people clearly feel that the template is senior management's way of saying "You are responsible for this project whatever happens. You can't use unexpected events as an excuse for failure." The business case writer responds by saying, in effect, "Bad things could happen but the project will still succeed if you give me proper support."
In this exchange the focus is on negotiating responsibility, not managing.
Now imagine you are writing that business case and the template is slightly different. It asks you to list areas of uncertainty in relation to the business case/project and actions that might be taken to manage them and their implications. Feel the difference?
Dr Jekyl's risk management encourages people to look at the future with an open mind and behave in accordance with that view. The impact of risk management comes from changing the way people think and the actions they take.
Mr Hyde's risk management pushes people towards even greater suppression of their uncertainty. It insists they know their risks in advance, that everything is done to reach the initially stated goals, and that deviation is failure and cannot be excused.
If you prefer Dr Jekyl to Mr Hyde then "uncertainty" is a useful addition to your toolkit.
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|If you found any of these points relevant to you or your organisation please feel free to contact me to talk about them, pass links or extracts on to colleagues, or just let me know what you think. I can sometimes respond immediately, but usually respond within a few days. Contact details|
About the author: Matthew Leitch is an independent consultant, researcher, and author specialising in internal control and risk management. He is also the author of the new website, www.WorkingInUncertainty.co.uk, and has written two breakthrough books. Intelligent internal control and risk management is a powerful and original approach including 60 controls that most organizations should use more. A pocket guide to risk mathematics: Key concepts every auditor should know is the first to provide a strong conceptual understanding of mathematics to auditors who are not mathematicians, without the need to wade through mathematical symbols. Matthew is a Chartered Accountant with a degree in psychology whose past career includes software development, marketing, auditing, accounting, and consulting. He spent 7 years as a controls specialist with PricewaterhouseCoopers, where he pioneered new methods for designing internal control systems for large scale business and financial processes, through projects for internationally known clients. Today he is well known as an expert in uncertainty and how to deal with it. more