Risk Managers MUST be Humble

Once you think of it, it seems obvious.  Risk Managers need humility.

If you are dealing with any killer physical risk, there are two types of people who work close to that risk, the humble and the dead.

Being humble means that you never lose sight of the fact that RISK may at any time rise up in some new and unforeseen way and kill you or your firm.

Risk managers should read the ancient Greek story of Icarus.

Risk managers without humility will suffer the same fate.

Humility means remembering that you must do every step in the risk management process, every time.  The World Cup goalkeeper Robert Green who lets an easy shot bounce off of his hands and into the goal has presumed that they do not need to consciously attend to the mundane task of catching the ball.  They can let their reflexes do that and their mind can move on to the task of finding the perfect place to put the ball next.

But they have forgotten their primary loss prevention task and are focusing on their secondary offense advancement task.

The risk managers with humility will be ever watchful.  They will be looking for the next big unexpected risk.  They will not be out there saying how well that they are managing the risks, they will be more concerned about the risks that they are unprepared for.

Risk managers who are able to say that they have done all that can be done, who have taken all reasonable precautions, who can help their firm to find the exact right level and mix of risks to optimize the risk reward of the firm are at serious risk of having the wax holding their feathers melt away and of falling to earth.

Explore posts in the same categories: Black Swan, Emerging Risks, Enterprise Risk Management, ERM, Execution Risk, Modeling, Risk, Risk Culture, Risk Management


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3 Comments on “Risk Managers MUST be Humble”

  1. […] Letting ERM routines substitute for critical judgment.  Some of the economic carnage of the Global Financial Crisis was perpetuated by firms where their actions were supported by risk management systems that told them that everything was ok.  But Risk managers need to be humble. […]

  2. riskviews Says:

    Managers who demand certainty in their risk management advice are either dangerously unaware of the nature of risk or they are looking for the risk manager to step up and take responsibility for risk. In either case the risk manager is in very dangerous territory.

    Many risk managers take positions where they know in advance that one or the other of those possibilities is true. They should also know that their position will be temporary.

    In the first case, where the manager actually does not understand risk, they will sooner or later be found to be Chicken Little’s as you suggest. The risk manager will always be pointing out the possibility, but not the certainty of adverse outcomes.

    The hopeful approach to this situation is one of education of management on the uncertainty perspective that underlies risk management.

    This is like embarking on a long road trip with a driver who does not know how to safely make a left turn, hoping that by the time a left turn is needed, that they will have learned. Good Luck.

    In the second situation, the risk manager is being set up by management. They are being put in the position of the scapegoat for difficult decisions. When one of those difficult decisions turns out to be worng – usually meaning that a firm decides to limit a risk that competitors choose to accumulate and that choice stymies growth AND the risk does not become a loss, then the Risk manager can be blamed and replaced.

    That is why Buffet is correct when he says that the CEO needs to be the person responsible for risk management. If that is not the case, then one of these two situations is likely to happen.

  3. Max Rudolph Says:

    Humility is a double edged sword. If you say might/could happen senior management will tend to discount you as a Chicken Little. By admitting that you don’t know everything some managers will ignore you.

    I agree with the post saying that you can be too sure of yourself too.

    Finding the proper balance is hard.

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