Should auld acquaintance be forgot.
At the start of every year there is a natural desire to look back at the past months and look forward to the year ahead. This human trait has become as much a part of our professional as our personal lives. Each year the World Economic Forum publish their global risk report where a large group of experts rank the top global risks and identify trends which will amplify them. Like other experts and businesses, we similarly take the opportunity to pass comment based on our views and what may prove valuable or interesting to our clients. Indeed risk forecasting has become an industry in it’s own right with tech start ups, expert consultants to guide your every move and widely accepted approaches. Are these risk forecasting approaches a science or a mirage used to confirm leaders pre-existing bias?
Risk Forecasting for Knowns and Unknowns.
Predicting future events based on past performance is something we all do. I expect bad weather in the winter, after all, I am based in Scotland. But I don’t expect structural damage to my house from high winds because we just don’t get hurricane force winds. Donald Rumsfeld famously paraphrased this.
“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”
Risk forecasting usually focuses on known unknowns, for instance looking at previous year’s data to assess the number of snow days, the depth of snowfall and the impact of these had on the organisation last time. All very well, but should you take the mean?, the greatest snowfall depth?, how many workdays were lost? ,need I continue?. What has changed in the interim?, have you moved office?, is there a longer term trend hidden by the data?, did you actually keep records of the true impacts? At this point the experienced leader throws his hands up and makes a decision, since any decision is better than none, right?
Risk Forecasting to Resilience Thinking.
It makes real sense to plan for events which are likely, indeed preparing for disruptions is key to an effective response. But if we are relying on experience of individual leaders, how does this work in a world where everything is increasingly complex, volatile, uncertain and very definitely ambiguous?. Forecasting trends over longer periods such as the Financial Times special report ‘Ten years out’ is even more difficult, making business planning very uncertain.
As a first step improving our prediction of things we do know, the Known Unknowns and its shy sibling the Unknown Known (something known by an individual or part of an organisation which is not more widely known). Philip Tetlock and Dan Gardner give some useful pointers with a ten step process increasingly used in forecasting events by agencies such as IARPA, improving prediction rates by a massive 78% over experts. Use of best practice publications from industry and government such as ISO and BS standards which draw experience from broad constituencies, can be effective for well understood processes.
Dealing with unknown unknowns is more complex. Firstly, are they really completely unknown or just some elements, breaking them down into smaller problems can be effective and often a discovery process makes them unknown knowns. Accepting the fact that no leader can prepare for every eventuality, nor afford it, the focus must move from events to outcomes. For example if your workforce is unable to come to work for whatever reason what is an acceptable outcome?. Do you accept a slightly longer response for customers during the disruption or do you need to consider building in additional flexibility or redundancy. Resilience thinking moves away from causes of disruption to how to respond and create new opportunity. Building this adaptive capacity will benefit the known unknown disruptions as well as the unknown unknown’s. Resilience comprises a broad range of capabilities and no organisation is the same, so developing this mindset is a continuing effort rather than a one time, off the shelf one size fits all solution.
So Mirage or Science?
It would be nice to say one or the other because as an engineer leaving a grey area doesn’t sit well with me. In reality it’s both, leaders need to understand the limits of their forecasting abilities, use best practice for known unknowns, and embrace the need to prepare for unknowns. By preparing in advance, an organisations vitality is sustained, and it can thrive and grow in the face of disruption.
Further Reading;
http://reports.weforum.org/global-risks-2017/
https://ig.ft.com/special-reports/ten-years-out/
Tetlock,P and Gardner,D., 2015. Super-Forecasting. The art and science of prediction. Penguin Random House.
The author, Paul Hancock is a Resilience Consultant at 360 Resilience Ltd. 360resilience.com
