Lightning or Lightning Bug

Mark Twain once observed that there was a difference between Lightning and Lightning Bug. An important difference.

The difference between the almost right word & the right word is really a large matter–it’s the difference between the lightning bug and the lightning.

Might there be a similar difference between Risk Management System and Risk Management?

A Risk Management System is composed of org charts, policy statements, Reports, meetings,committees, computer models, powerpoints and dashboards.

Risk Management means making tough decisions and taking unpopular actions that more than 9 out of 1o times will not look like they were the right calls after the facts.

But decisions and actions that every once in a long while will save the firm.

So can Risk Management happen inside of a Risk Management system?

But think about it.  Can you think of an example of a situation outside of a risk management system where getting more people involved results in MORE of the tough decisions being made?  Or MORE unpopular actions being taken?

So how should one go about creating a risk management system that actually does Risk Management?

Start with the tough decisions and unpopular actions that are sometimes needed.  Can you identify them?

Start there.  Find a person who has the qualities of discernment, judgment, balance, toughness and experience with the risk to make those tough decisions and to make sure that the unpopular actions happen.  Build the risk management system so that the person gets the information and authority and protection that they need to get the job done.

That would be difficult if that was all that was needed.  But this person, if they are doing their job, will be reversing some business decisions that might otherwise make some money.  So you also need an information system that assures top management that the risk manager is making the right tough decisions.

That system needs to help to identify whether the risk manager is making either Type I or Type II errors.  And if you want to keep a good risk manager and avoid keeping a bad risk manager, you need to have a realistic tolerance for the errors that your information system identifies.

Oh Hell.  It is much easier to just do the pretty risk management system and try to just take as much risk as everyone else.

Must be why so little Risk Management actually happens.

And Lightning Bugs are so pretty on a summer night.

Advertisements
Explore posts in the same categories: Action, People Risk, Risk Management, Risk Treatment

Tags:

You can comment below, or link to this permanent URL from your own site.

One Comment on “Lightning or Lightning Bug”

  1. Max Rudolph Says:

    These comments are very perceptive. For risk management to occur, someone needs to be strong. Yet our risk management systems (or frameworks) require consensus and sometimes develop into a bureaucracy. I have noted some companies that seem to have both great risk management and a great risk management system, but the two are independent of each other. That is indeed troubling.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: