Radical Risk Management

By Horst Simon, The Risk Culture Builder

If you are still trying to Identify all the risks you are exposed to within the context of your business or
spend endless hours converting historic data into useless risk reports in an effort to mitigate as much
risk as possible for a green light on the road to taking less risk (for less reward); spending a fortune on
controls and the digging of trenches for your lines of “defense”…. Fear no more!

The Radical Risk Management process is here and the future is bright for those who choose to go
through the disruption of dumping the outdated thinking, concepts, models and processes; things like
the risk management “process” that is based on the assumption that it is possible to identify all the risks
you are exposed to and then follow a dedicated process of mitigating all those risks as well as ideas like
“Green is Good” and the 3/4/or even worse, 5 “Lines of Defense”. The management of risk is a mental
process, not a technical process of data gathering, evaluation and reporting at consistent intervals with
an expectation of a different outcome; or even “improvement.” Those who do nothing will just be
exploited by those who change and get better at the management of risk.

This radical process involves only four components:

Situational Awareness, Mental Simulation, Naturalistic Decision-making and finally, Response

Execution.

These are built around key elements of an effective risk culture, namely; Risk Intelligence gathered from
everywhere (not just last quarter’s outdated risk report), A Risk Nervous system through which this
information can flow everywhere in the business (not a process of sanctification where reporting gets
better the higher it goes) and all employees having the Competencies and skills to manage the risks
associated with their jobs on a daily basis to ultimately build sustainable competitive advantage for the
organisation (no levels of assurance, squadrons of policemen or lines of defense, there is nothing to
defend against).
Risk Intelligence:

“Information is anything that can be known, regardless of how it is discovered. Intelligence refers to
information that meets the stated or understood needs of [the users] and has been collected, processed,
and narrowed to meet those needs. Intelligence is a subset of the broader category of information.
Intelligence and the entire process by which it is identified, obtained, and analyzed respond to the needs
of [users]. All intelligence is information; not all information is intelligence” --Mark M. Lowenthal,
Intelligence: From Secrets to Policy (from Special Warfare Bulletin, JFK Special Warfare Center and
School, Fort Bragg.)

In an effective risk culture, people care enough to think about the risks associated with their jobs before
they make decisions on a daily basis.

In the ultimate risk culture, every person acts as a risk manager and will constantly evaluate, control and
optimise risks to make informed decisions and build sustainable competitive advantage for the
organisation. (Read more about Risk Culture Building in my articles on LinkedIn)

Success depends on the levels of accountability you drive in your organisation and the time and effort
you put into building an effective risk culture. Do not even attempt this if you are going to keep a
process of making risk decisions in committees where these decisions are “syndicated” without anybody
taking any accountability. That will not work in the Radical Risk Management process!

There is also no need to employ consultants to help you with this, I could never anyway understand why
organisations would pay “outsiders” to come in and gather ideas from their staff and convert these into
PowerPoint presentations they sell back to the organisation. There is no Blueprint of one-size-fits-all for
the Radical Risk Management process, you have to build the unique process in your organisation, based
on the underlying corporate culture and organisational structure and focusing on driving both the
behaviours you want to encourage and the behaviours you want to avoid.

You need to take each of the four components and develop these within the context of your business
strategy, goals and objectives. If a risk will not prevent you from reaching your business goals, don’t
worry about it; you can never identify all the risks you are exposed to, the key factor is how your
employees will respond to a situation of risk in “real-time”. Business is not a game and business
decisions based on last quarter’s risk report is not such a good idea in real-life, there is no reset button!

Let us briefly look at the four components:

Situational Awareness-

 “is the perception of the elements in the environment within a volume of time and space, the
comprehension of their meaning, and the projection of their status in the near future”; as
defined in Endsley's model of Situational Awareness.
 -“Skilled behavior that encompasses the processes by which task-relevant information is
extracted, integrated, assessed, and acted upon” (Kass, Herschler, & Companion, 1991).
 “Continuous extraction of environmental information, integration of this information with
previous knowledge to form a coherent mental picture, and the use of that picture in directing
further perception and anticipating future events” (Dominguez, 1994).

Situational awareness is having an accurate understanding of our surroundings — where we are, what
happened, what is happening, what is changing and what could happen; knowing what’s going on so you
can figure out what to do, Collecting information from your surroundings and situation to improve your
decision making and circumstances by:

 Using your senses (sight, smell, sound, taste, and touch)

  Monitoring the messages that others are providing through their behavior and
communications
 Being attentive to environmental circumstances that may indicate challenges, opportunity,
or danger

Reticular Activating System

A pathway in your brain that:

 Filters incoming information

 Turns on the “pay attention” button
 Expands your intuition
 Improves the message system between your subconscious brain and your conscious brain

Levels of awareness

 Tuned Out
 Relaxed Awareness
 Focused Awareness
 High Alert
 Incapacitated

Mental Simulation is our mind's ability to imagine taking a specific action and simulating the probable
result before acting. Anticipating the results of our actions improves our ability to solve new problems.
Mental Simulation relies on our memory, learned via perception and experience. (Josh Kaufman, The
Personal MBA)

There are a number of things you can do to minimize the perceptual analysis. The first is doing exactly
what you are doing at this moment. You are thinking about it! Become aware of the possibilities and
think about them. Sudden situations of risk and the likely adrenaline dump are not things we are used to
or comfortable with. By thinking about our reactions, by cognitively dealing with the possibilities of
outcomes, we take the first step in managing the risk response.

Mental Simulation includes running Imagery of the situation and the actions to achieve outcomes.
Imagery is the set of mental visual pictures of oneself proceeding through a series of actions. Imagery
can go beyond just pictures and incorporate the other senses as well. Research into the use of imagery
indicates that it has positive effects including improving self-confidence, task completion, concentration,
and coping. Effective use of the imagery technique has seven elements: physical, environment, task,
timing, learning, emotion, and perspective (PETTLEP: Dave Smith, Caroline Wright, Amy Allsopp, and
Hayley Westhead, “It’s All in the Mind: PETTLEP-based Imagery and Sports Performance,” Journal of
Applied Sport Psychology 19/1 (2007)

Naturalistic Decision-making-

Decision making involves assessment and choosing a course of action. Decision making requires an
understanding of the situation and controlled thinking. The situation determines the urgency of the
decision, risks and limits of action.

The naturalistic decision making (NDM) framework emerged as a means of studying how people make
decisions and perform cognitively complex functions in demanding, real-world situations. These include
situations marked by limited time, uncertainty, high stakes, team and organizational constraints,
unstable conditions, and varying amounts of experience. (Wikipedia) Every business in today’s
marketplace operates under these conditions and practicing this based on last month’s risk report can
be futile.
Mindfulness is a key element in decision-making. Mindfulness is the idea that one should be present in
the moment and acknowledge his or her own feelings, thoughts, and sensations. Arguably, mindfulness
is linked to situational awareness. Research suggests that mindfulness decreases accidents and mistakes
while increasing memory and creativity. Researchers also assert that mindfulness can decrease stress
and even increase a person’s general health. Additionally, recent research into mindfulness showed that
it could actually change the brain physically for the better. This research indicated that mindfulness
could increase the density of brain matter in the anterior cingulate cortex and the hippocampus
resulting in better attention, self-regulation, thinking flexibility, reduced stress, and increased memory.

Response Execution- Once these steps are complete and a response has been selected; the
response, or action, must be executed. Correct and effective execution requires smooth and
timely coordination to achieve the desired result of optimizing the risk to get maximum benefit for
the organisation. The availability of resources also affects a response and inadequate attention results in
ineffective execution.

Peak Response Execution is an action(s) of optimal cognitive, emotional, and physical functioning.
Cognitively, people are at their peak when they have focused attention, ignoring unimportant things and
allocating brain power to the task at hand. Warfighters performing at their peak can better assess the
situation, make decisions, and perform the right tasks at the right time. Additionally, individuals
performing at their peak are less likely to succumb to stress and “choke” when it counts.