Newsletters & Blogs


2010-04-21
The Known, the Unknown and the Unknowable – a case for robust RISK MANAGEMENT.


The Known, the Unknown and the Unknowable – a case for robust RISK MANAGEMENT.

21 April 2010.

I have been struck over the past few weeks at the incredible pace (increasing pace) of “crazy news”, ranging from the most outrageous things said (by a cross section of by those in power or influence), to completely unforeseen events that have threatened the economies of many countries (especially some in Africa), so some simply unacceptable “corporate confessions or accusations”. Let me outline some of these.

A couple of weeks ago we all witness, with a mixture of horror and mirth, the parallel antics of a representative of the AWB and leader of the ANC Youth League (I don’t even want to, or have to mention names). With “priceless” phrases like “don’t touch me on my studio” and “that white tendency” thrown in among aggression and threats “ you haven’t heard the last of me”, “ do you know who I am”. These unscripted moments serve not just to stir an already simmering pot but also to provide material (ammunition) for everyone from the “casual sofa politician” to the countries comedians to the members of (whatever) opposition (you may belong to).

Enough now!

And then a Volcano (with an unpronounceable name – unless you grew up in a country with 9 to 10 months per year of winter!) has provided us with not just a natural spectacle but also a clear indication of the fragility of the foundations upon which we have built our economies and lifestyles of convenience and access.  The irony (perhaps) is that we have been expecting increasing calamity from the climate (that “operates” above the earth) but this has struck us from “beneath the earth”, as have a series of devastating earthquakes internationally over the past few months!

Something is up!

And then as the spotlight has fallen in recent months on the debacle around the construction of the new power stations – with a series of revelations regarding the ruling parties interest in one of the major constructions companies who “won” the tender” this company has stated that they simply “did not know” who was “behind” the investment company that holds a 25% share in them.

Unacceptable!

One of the key responsibilities of decision makers in the current environment is that of RISK MANAGEMENT – all 3 of the above incidents/events illustrate something about this.

1.      There are some things we know – there is a consistency in the behaviour of certain groups and parties. These are “KNOWN” risks. The best thing to do is to avoid them as far as is possible, manage around them where necessary – and stay away from the inevitable fall-out;

2.      Other things are simply “UNKNOWABLE”, very difficult to anticipate and certainly unexpected. These can have a huge impact that is very difficult to assess because the impact is very difficult to properly describe. Ask the flower and fruit exporters in Africa if they ever thought that a Volcano the other side of Europe would shut them down – unfortunately as so often happens the vulnerable (individuals and economies) are often the first and hardest hit – there have already been major layoffs in Kenya due to this! We own insurance mainly because of the unknowable – these so-called “Black Swan” events hit us unexpectedly in unexpected ways;

3.      A third category in Risk Management is the “UNKNOWN”! This is the easiest to overcome and manage because “finding out” about stuff that falls into this category is often not too difficult. How do we find out – we ask lots of questions, we speak to the right people, we employ the right people, we build knowledge systems to capture and “broadcast” the knowledge required, or at least to make it accessible when needed and lastly we remain aware of our own blindspots... how many “mistakes” have been made because we have not aggressively pushed back the boundaries of knowledge to encompass this area of the unknown? Who carries the brunt of these “mistakes”? The excuse “we/I didn’t know” holds very little water – especially today!

The challenge to myself is to better understand, and classify the things I face in the light of these 3 areas... what is KNOWN, what is UNKNOWABLE and what is UNKNOWN. Once I have assessed this I can start to do something about it (laugh, cry, insure, investigate, run, change...) and better manage the risks I face.

Author: Roger Hitchcock, Specialist Advisor: Strategy, Governance and Risk Management; Honeylane Consulting. (Please feel free to contact Roger at roger@sinkorswim.co.za )