Rounding Up to Reduce Drift into Failure and Maintain Risk Karma
So what to do about Drift into Failure?
Think of DIF in simple math terms. At every turn in the calculation, you are rounding down or truncating the values that you calculate. With that process, your result will always be low. Not always noticeably low but with a bias to be below the value that you would have calculated with carrying forward the value with all of the decimal points.
With a Risk Management or Safety system, it is the same thing. If checking ten times will give a .9999 guaranty of safety, then nine times should be good enough. If lubricating weekly produces no failures, how about lubricating every 9 days. And so on. If a hedge that is 98% effective works out fine most days, how about a hedge that is 96% effective. A $5 million retention works, why not move it to $5.5 million.
In every case, the company rounds down.
So the practice that is needed to reduce DIF is to occasionally round up. One year, try rounding up on half the risk systems. Make the standards just a tiny bit tighter a few times. Balance things that way. Think of your firm as accumulating bad karma by allowing the shortcuts, the rounding down on the risk management and safety systems. Protect the karma, by going the other way in the same sort of imperceptible small steps that are the evidence of the DIF.
Stop Drifting. Join the Fight Against Bad Risk Karma Today.Explore posts in the same categories: Enterprise Risk Management, Execution Risk, People Risk comment below, or link to this permanent URL from your own site.