The Annoying Orange of risk management

 

In 1976, Donald T. Campbell wrote “The more any quantitative social indicator…is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.”

Against the backdrop of Campbell’s law, has it ever happened where you presented tables or charts to a risk committee and someone (believing they are clever) asks: “I counted 5 Red, 9 Orange and 6 Green risks in Asia but only 3 Red, 7 Orange and 10 Green risks in USA? Why do we have “more risk” in Asia?”

While you roll your eyes and wonder why someone so stupid is on the risk committee here is summary of what you should say:

  • Risks are not additive.
  • While a cashier can add the oranges we purchase in the grocery store one cannot add the Oranges in a risk report.
  • Every business unit has its own risk tolerances. In quantitative terms a Medium risk may be $100,000 in Vietnam, $500,000 in Hong Kong and $1,000,000 in Chicago, so adding risks is like adding apples to..well..you know.

What’s more, to add the risks is to assume that they were properly assessed in the first place. There isn’t a lot of science that went into assessing those 5 Red and 9 Orange risks so who’s to say that there aren’t 7 Red and 7 Orange risks and the business unit head didn’t game the risk assessment process? (See Campbell’s law above.)

Remember that we identify and assess risks so we can prioritize action plans that treat those risks; and doing something to mitigate 20 risks is better than doing nothing.

Orange you glad that you know this now?

Photo credit: The Annoying Orange

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