What if we fail? This is the question
that has haunted all businesses and leaders on the eve of every new venture,
every ‘supposed’ milestone and ground-breaking announcement they have to make.
Sure, the idea sounded good at first, perfect even. It was a ‘eureka’ moment, a
“why didn’t we think of it before?” scenario. But, when the doubt kicks in, it
keeps them up at night, wondering, fearing what could happen, and how it will
happen. All of a sudden, everything is uncertain, the future isn’t as clear as
you first thought it would be, and you find yourself asking if this was a
mistake or a risk worth taking. Ignorance apparently is not bliss.
Truth be
told, no one has it all figured out – at least, not entirely. Even the geniuses
ruling Silicon Valley know that the world is full of uncertainty and that
there is no recipe for success.
“Success is
never certain. It never comes without risk. Even if you’re the smartest or the
hardest working, there’s no guarantee of anything. The people who go on to do
great things in their lives know this. They also embrace it,” says author Gary John Bishop. “They
didn’t succeed because they were certain they were going to succeed; they
succeeded because they didn’t let uncertainty stop them.”
Successful
businesses today know this all too well. And, if we’re going to keep moving
with the change, we have to embrace uncertainty as innovation’s necessary
evil twin. With digital technologies metamorphosing at lightning speed, and
business models uprooting accordingly, uncertainty will need to become the new
norm we learn to leverage. It is a natural-born shapeshifter that can bring
prosperity or havoc, and it’s our job to unlock its benefits – against all
odds, all risks.
Risk and Uncertainty: the two ends of
a spectrum
Risks are
cases of known probability, according to famous economist Frank Knight.
Say you have to pick a card out of a deck, while you cannot predict exactly
what card will turn up, you know your chances – regardless of how slim they
are. Renowned as one of the world’s leading economists during the twentieth
century, Knight made significant contributions to modern day understanding
between economic risk and uncertainty through his book Risk Uncertainty
and Profit.
Uncertainty,
on the other hand, is the complete lack of certainty. You didn’t think it was
possible, you didn’t even think it existed. But, while the two may be the ends
of a single spectrum, uncertainty is not akin to being sucked into a black hole
or vanishing into oblivion. It, in fact, even breeds new possibilities,
challenges limitations, and brings hope that everything can change and anything
can happen. We have no choice but to embrace and acknowledge it. As a revered
Persian poem by Ebn Yamin goes: “One who doesn’t know and doesn’t know that he
doesn’t know…he will be eternally lost in his hopeless oblivion.”
In his
book, Uncertainty: Turning Fear and Doubt into Fuel for
Brilliance, Jonathan Fields speaks to the opportunity that
always goes hand in hand with upheaval: “If everything is known and
certain, that means it’s all been done before. And creation isn’t about
repetition.”
There has
to be room for obscurity and utter failure, chaos or quandary, that will thrust
you into the dark room of innovation until new
and better ideas can take form in the light. The more ‘chameleon-like’ in its
approach, the more adaptable and open to reinvention, the more likely an organisation
will be to ride out the waves of disruption and come out on top.
The
problem, however, is not everyone has enough courage to face uncertainty,
instead fearing potential reputation damage following a risky move. But, as
overwhelming it can be, not knowing what will happen is an unacceptable
excuse not to act. It actually suggests otherwise. If you choose to stay in bed
all day to reduce the chance of misfortune, you also miss all the glorious
opportunities and chances to enrich your reputation that a day outdoors and
with other people can bring. Minimising risk means eliminating opportunity;
in these constantly evolving times, it’s important to identify and manage risks
and opportunities, while also protecting your reputation.
Start small, think big, optimise
risk!
Risk
professionals are not strangers to uncertainty; it’s one of their biggest
hurdles. As the access to information and the power to pass it on (whether fake
or not) is now literally within arm’s reach of anyone who has a handheld smart
device, disruptions can come from anywhere. Thus, risks become harder to
identify and manage.
What if
looking at the big picture is not the key? What if zooming in the lens a
little further or taking a microscopic view of the risk factors is the solution
for businesses to become nimble and agile in the face of uncertainty?
More often
than not, risk is described as a single event. It is not. It is actually a
combination of several aspects we can call ‘symptoms’ – elements of an
activity, product or service that has the potential to cause an impact. Take
for example, the risk of getting hit when crossing a road. There are a lot of
symptoms and factors: how far is it from your side of the road to the other,
are you going to stroll or run across, are you on crutches or in a wheelchair,
and what is the weather like? What are the kinds of vehicles that will pass by,
what is the state of the drivers of these vehicles, are they rushing to their
destinations, or are they under the influence?
Individually,
these symptoms can be harmless, but together they can be damaging or life
changing. They can affect each other, triggering a ripple effect such as in
dominoes where every piece matters, like a risk chain. If you change one
aspect, more changes may follow for better or worse.
In an
article titled Risk Management and the Butterfly Effect, Thomas
Frenehard, SAP Senior Director, Business Development for Finance & Risk
solutions, explains that: “Key risk indicators are a great way to keep an eye
on these underlying risks and their drivers. And if these indicators are
automatically updated, it means that they can be regularly compared against
thresholds and that you will be notified only if a negative trend is building.”
In fact,
engineering firms have started adopting this model, using hybrid tools and
techniques comprising various risk management frameworks to ensure a more
certain outcome. Risks and critical success factors are initially identified on
a larger scale, and then each one is further isolated and analysed with the help
of other tools and techniques to determine and optimise decision making.
If risk
professionals act like uncertainty’s neurosurgeons, wielding the scalpel and
diagnosing the health of those symptoms, we can dissect situations and then
pull back the magnifying glass to gain the big picture.
Can it be machine learned?
The tedious
process of configuring these risk chains is painfully manual and never ending.
There will always be new factors, risks, and surprises, uncertainty says so.
But the good news is, in the hands of today’s powerful technology, this has the
potential to be machine learned.
Once we
understand these symptoms and risk chains, we can build a library of
configurations that can be developed, updated, and improved through time as we
encounter the different faces of uncertainty. Utilising hybrid tools and
techniques custom-framed to address the organisational reality for each sector,
the algorithm can split all the courses of probability of taking a certain
decision in just one click.
However, machine
learning should not be seen as a silver bullet, according to Lourenco Miranda, head of model risk
management for Americas at Societe Generale in New York. “Humans would never be
replaced for the more complex decisions in model risk but, by training a
machine to process repetitive parts of validation, we can focus our attention
on the higher and more complex models responsible for the biggest exposures. It
is a great increase in efficacy of the model risk management process,” he says.
If we can
learn to navigate in the dark, sidle up to uncertainty, and leverage the right
tools and big data, we can train ourselves and our organisations to thrive in
these volatile and random times. We will never know if we’re going to succeed
or fail until we do, that is uncertainty; but, the more we welcome risk through
the front door and reframe it as resilience, the better poised we’ll be to shape
our collective future. There is a lot to know in not knowing.
Aurecon’s award-winning
blog, Just Imagine
provides a glimpse into the
future for curious readers, exploring ideas that are probable, possible and for
the imagination. This post originally appeared on Aurecon’s Just Imagine blog. Get access to the latest blog posts as soon as
they are published by subscribing to the blog.
Contributed by Simon Van Wyk/GEE
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