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The Night’s Watch and the Wall of risk management

January 20, 2012 by riskczar

 

In the series A Song of Ice and Fire which begins with the book A Game of Thrones, by George RR Martin, we are introduced to the Wall and the Night’s Watch.

The Wall is an immense fortification on the northern border of the Seven Kingdoms that defends the realm from “what lies North of the wall”. It was created over 8000 years ago and measures 300 miles in length and 700 feet in height.

The protectors of the Wall are a military order clad in black known as the Night’s Watch and they are as old as the Wall itself. While kings come and go and wars are fought in the Seven Kingdoms, the Night’s Watch’s allegiance is always to the realm.

As I see it, the wildlings and Others which lie North of the wall are risks to Westeros; the wall is the risk management; and, the Night’s Watch are the risk managers.

A couple of other takeaways from this analogy:

1. The Lord Commander, the final authority over the Night’s Watch is like our modern day Chief Risk Officer. What’s interesting is that unlike in the rest of feudal Westeros where only lords and knights rise to positions of authority, the Night’s Watch is a meritocracy. Even a common man can rise as high as Lord Commander. (Read: You can make anyone with strong leadership skills the CRO. The position doesn’t have to be filled by anyone else from the C-suite and they definitely don’t have to be a professional accountant.)

2. Like the Night’s Watch who has an allegiance to the realm, modern day risk mangers should only have an allegiance to the organization and shareholders and never to the CEO, CFO or gods forbid the head of internal audit.  This approach has worked for 8000 years for Night’s Watch so it should work for your organization today.

Finally, when someone joins the Order they take a vow; this is known as “taking the black”.  As you read this, consider how today’s risk managers should also take a vow like this:

“Night gathers, and now my watch begins. It shall not end until my death. I shall take no wife, hold no lands, father no children. I shall wear no crowns and win no glory. I shall live and die at my post. I am the sword in the darkness. I am the watcher on the walls. I am the fire that burns against the cold, the light that brings the dawn, the horn that wakes the sleepers, the shield that guards the realms of men. I pledge my life and honour to the Night’s Watch, for this night and all nights to come.”

Posted in Books, leadership, My Opinions, Risk management | Tagged , , , , , , | Leave a Comment »

How to Make a Peanut Butter Sandwich: Henry Blodget

January 20, 2012 by riskczar

A website dedicated to the popular show Lost published a post a while back about how each of the characters on the show would make a peanut butter and jam sandwich. I have borrowed this idea to illustrate how some finance or risk management professionals might make their own sandwich.

In my 4th instalment we look at how former equity analyst Henry Blodget might make a sandwich.

How to Make a Peanut Butter Sandwich: Henry Blodget

  1. Make an ordinary peanut butter and jam sandwich.
  2. Tell everyone that peanut butter and jam sandwiches are the best sandwiches in the world.
  3. Throw out your own sandwich because you really hate peanut butter and jam.
  4. Write a book about the sandwich.

Posted in Humour, PBJ Sandwich | Tagged , | Leave a Comment »

How to Make a Peanut Butter Sandwich: Norman Marks

January 19, 2012 by riskczar

 

In my third instalment of this increasingly less funny series, we look at how popular auditor and blogger Norman Marks might make a PBJ sandwich.

How to Make a Peanut Butter Sandwich: Norman Marks

  1. Add jam and peanut butter to bread.
  2. Perform a self-assessment to determine if that was actually peanut butter, jam and bread.
  3. Check off boxes.
  4. Ask Tim Leech if this is an adequate sandwich.
  5. Draft a new framework about how to make a peanut butter and jam sandwich.
  6. Solicit input on LinkedIn from others who like peanut butter and jam sandwiches.
  7. Publish findings in Internal Audit magazine.

Posted in Humour, PBJ Sandwich, Uncategorized | Tagged , , | 6 Comments »

The black swans and Field of Dreams

January 19, 2012 by riskczar

 

Yesterday I wrote about a white paper “Black Swans Turn Grey” from PwC. Here’s a footnote to that post.

I had a good chuckle when I read about these “new black swan risks”. The authors suggest that all these unknown unknowns and unpredictable events are happening more frequently these days. This of course is not true.

We are seeing the same sort of thing in the NHL with respect to concussions. For the longest time players have been getting concussions; the only difference is that now more players, coaches and people in the media are paying attention to them. Whereas a player might have been undiagnosed and complained about headaches 20 years ago, today the league is taking it more seriously. Same goes for these black swan risks.

I imagine people are having one of those moments like in the film Field of Dreams where Timothy Busfield’s character suddenly sees the dead baseball players and asks how long they have been there. Truth was they players were there the whole time; but it wasn’t until that moment when he finally believed that he truly saw them.

Same goes for those risks. They have always been there. It is only with increased awareness of risk management that folks are starting to see them.

(Fast forward to 2:40 of the video link.)

 

Posted in ERM Basics, Frameworks, Risk management, Sports | Tagged , , , , , , | Leave a Comment »

How to Make a Peanut Butter Sandwich: Donald van Deventer

January 18, 2012 by riskczar

A website dedicated to the popular show Lost published a post a while back about how each of the characters on the show would make a peanut butter and jam sandwich. I have borrowed this idea to illustrate how some finance or risk management professionals might make their own sandwich.

In my first PBJ post, we looked at how Nassim Taleb, author of The Black Swan might make a sandwich. In today’s post we look at how one of my Twitter chums, Donald van Deventer, founder of Kamakura Corporation, might make a sandwich.

How to Make a Peanut Butter Sandwich: Donald van Deventer

  1. Take Starship Enterprise to Japan to get radioactive peanuts.
  2. Return to Waikiki and crunch peanuts in nerd grotto to make peanut butter.
  3. Add generous portions of Kewpie blueberry jam to bread.
  4. Play ukulele.
  5. Enjoy sandwich with 100% kona at Island Vintage Coffee.
  6. Watch surfers.

 

 

Also, see how Norman Marks makes a PBJ

Posted in Humour, PBJ Sandwich, Risk management | Tagged , , , | 1 Comment »

The iPhone 4S of enterprise risk management

January 18, 2012 by riskczar

 

Last year Apple released the iPhone 4S and critics pointed out it was pretty much the iPhone 4 with a big-s glued on. Although there were some minor improvements from the iPhone 4, overall it was pretty much the same phone.

After reading the ERM white paper “Black Swans Turn Grey” from PwC, it made me think that all the authors have done was glue a big-s to existing ERM frameworks. While they try to make it sound like they are proposing a new risk management approach, in fact this paper reads more like an indictment of the people who have implemented ERM poorly. Then again, like the iPhone 4S, perhaps this paper is not intended to for existing customers but to convert new ones instead.

Their suggestions for improving upon existing ERM include:

  1. Align risks to corporate strategy
  2. Develop a risk aware culture
  3. Focus on risk appetite
  4. Align risk and strategy

Aren’t they supposed to be doing this already?

The paper also notes: “Some are not convinced that their return on spending on Enterprise Risk Management (ERM) frameworks is fully justified by the level of protection they gain from them.” To that I say there is nothing wrong with the framework of ERM; it’s the people who are doing a terrible job implementing it.

It’s long been my view that implementing an effective ERM program is an exercise in change management. No more no less. I also believe that the vast majority of people who hold risk management leadership positions were promoted into those roles because someone mistakenly believed that a person who has some auditing experience could naturally do risk management. If that’s the case, not only would that individual probably not have change management experience but they probably don’t even know they require it. If boards are not seeing the gains they expected, blame the people doing the job and not the framework.

What’s more, the authors write that ERM has become a box-checking exercise. Well, what would you expect with all those auditors doing risk management? (Zinger.)

Finally, while I do not read any new breakthrough thinking here I still agree that the key success factor is the cultural transformation mentioned. But until organizations buy into my paradigm that to change culture one needs skilled leaders and change agents with the right set of skills, we are likely to see a lot more boards disappointed by their ERM programs.

Posted in Frameworks, My Opinions, Risk management, Thought Leadership | Tagged , , , , , , , , | 1 Comment »

How to Make a Peanut Butter Sandwich: Nassim Taleb

January 17, 2012 by riskczar

A website dedicated to the popular show Lost published a post a while back about how each of the characters on the show would make a peanut butter and jam sandwich. I have borrowed this idea to illustrate how some finance or risk management professionals might make their own sandwich.

In my first PBJ post, we look at how Nassim Taleb, author of The Black Swan might make a sandwich. This is intended to be jokes.

How to Make a Peanut Butter Sandwich: Nassim Taleb

1. Complain that statisticians, mathematicians, physicists, financial analysts, Nobel prize winners cannot make a peanut butter sandwich.

2. Make the most pretentious and boring sandwich ever then don’t explain to anyone how you did it.

3. Claim you invented peanut butter.

4. Heckle at everyone else’s sandwiches.

5. Eat a swan instead.

 

See how Donald van Deventer makes a PBJ

See how Norman Marks makes a PBJ

 

Posted in Humour, PBJ Sandwich | Tagged , , , | 1 Comment »

Angry Birds risk management

January 4, 2012 by riskczar

I’ve been playing quite a bit of Angry Birds ever since I got my Samsung Galaxy Tab for my birthday. I love this game.

The objective of course is for birds (each with their unique strengths) to destroy the structures –  where all the pigs who have stolen the birds’ eggs –  are hiding. When a new level is presented one looks at the weaknesses of structure and the order of the birds in the queue; then one decides where and when to strike. Often you want the Yellow bird next to smash through the wood but you have the Black one or the Red one in the sling shot. And while it is not immediately obvious to the player what to do with that bird at that moment, it becomes apparent that the birds have it figured out and are lined up that way for a reason.

This is Angry Bird risk management.

Despite being on a suicide mission to destroy the evil pigs, they are not going in blindly. They are strategic. These birds are crafty. They know the reward of saving the eggs outweighs the risk to their own lives. The birds have looked at the tables.

So while there is catastrophic amounts of health and safety risk to the birds (if they miss their target they die in vane before another team of Red, Red, Yellow and Blue birds queues up and tries again), it is clear to me that the Angry Birds are practicing intelligent risk management.

Meeting our organizational objectives is not without risks; like the birds we increase the likelihood of success with careful planning, prioritization and execution in treating these risks.

(Photo courtesy of SardonicSalad.com)

Posted in Humour, My Opinions, Risk management | Tagged , , , , , , , | Leave a Comment »

Maslow, Ned Stark and the Common Good

December 23, 2011 by riskczar

Last week Ted Coine asked ‘what ever happened to the Common Good?’ At some point people stopped doing the right thing and started putting their individual selfish interests ahead of those of their organizations, countries or kingdoms: UBS, the nation of Greece, Queen Cersei, etc.

These days we see squabbling in Washington over the budget because no one wants to do the right thing for the country. Everyone talks to the hand about cutting costs so long as it is not in their backyard.

Just read Sen. Tom Coburn’s (R-Oklahoma) new report on wasteful government spending issued this week to learn about the $936,000 spent to stimulate online soap operas or $75,000 to promote awareness about the role Michigan plays in producing Christmas trees & poinsettia. Dr. Coburn writes: “Over the past 12 months, politicians argued, debated and lamented about how to reign in the federal government’s out of control spending. All the while, Washington was on a shopping binge, spending money we do not have on things we do not absolutely need. Instead of cutting wasteful spending, nearly $2.5 billion was added each day in 2011 to our national debt, which now exceeds $15 trillion.”

What happened to spending for the Common Good?

For those of you who believe $75,000 is not material when compared to $2.5 billion I say shame on you. It’s all those small, stupid expenses that add up. When times are tough at home we stop buying $5 lattes and eating out and shift our spending to what we need and make peanut butter sandwiches every day. (See Maslow.)

Finally, in A Game of Thrones, when Ned Stark became the Hand, King Robert wanted to hold a jousting tournament to honour the new Hand. But when Stark met with his council and learned that the kingdom was practically bankrupt Ned insisted that they don’t hold the tournament as they could not afford it. And besides, he didn’t want it.

The point I am trying to make is that anyone can spend money; but it takes a strong, responsible leader like Ned Stark to not spend it and make the tough decisions for the Common Good.

Posted in Books, leadership, My Opinions, Office and culture | Tagged , , , , , , , | 3 Comments »

Ned Stark. Hand of the King. Chief Risk Officer.

December 7, 2011 by riskczar

Eddard (Ned) Stark, Lord of Winterfell, is a protagonist in the book A Game of Thrones by George R.R. Martin. He is principled and tells the truth and believes in honour and justice. Ned would make an excellent Chief Risk Officer.

When King Robert Baratheon asked him to become the Hand of the King – a chief advisor to the King who executes the king’s command and speaks in the King’s voice – it was not a job Ned was seeking. He took the job because his friend needed him and Westeros needed a man like him. In that role, Ned Stark put the Kingdom first.

A successful CRO needs to be a bit like the Hand and Ned Stark. It requires someone willing to put the organization first, who tells the truth and seeks the truth. And like the role of the Hand, the CRO needs to have the power to be taken seriously so as to accomplish the organization’s objectives.

(Spoiler alert: Do not read the rest of this post if you have not read the book.)

While investigating why his predecessor was murdered, Ned identifies the biggest risk to the Kingdom: the king’s heirs are actually the progeny of Queen Cersei and her twin brother. Like a CRO, Ned tries to do the right and honourable thing and reveal the true risk to the king so it can be properly treated. But before he does, Ned approaches Queen Cersei and warns her to get out of town. Sadly, the Queen conspires to have the king murdered instead. Then with no legitimate and lawful heirs, Ned Stark suggests that the throne has to pass to Robert’s older brother Stannis; it is the right thing, the honourable thing. The truth.

But before the incestuous truths can be revealed, the Queen moves first against Ned and places her son on the throne. Ned is later beheaded for his treason.

As a risk professional I have always conducted myself like Ned Stark. Although my honour and affinity for telling the truth have perhaps gotten me beheaded once or twice as well, like the late Lord of Winterfell, I cannot behave any other way. Nor should any leader.

People in CRO (or any risk leadership) roles need to be more like Ned Stark but sadly there are too many Cerseis who place their own personal interests before the truth and their organizations. Too often they win but lately it appear the liars and cheats are paying for their crimes.

Posted in Books, ERM Basics, My Opinions | Tagged , , , , , , | Leave a Comment »

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