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The Risk of not Facing Risk

July 16, 2018

 

When we address climate change we evaluate risk. Reams of paper have been filled with discussion and debate on risk, but much of fit is just that: talk about risk and commentary after the fact of some event that should have been better risk-managed.  

 

The focus on facing risk remains in the minority. Moreover, there is lack of debate on how policy and corporate governance can deal with the human behavioural bias in facing risk. 

 

Humans are risk adverse. This is a valuable survival mechanism. It is a trait that is effective in addressing the immediate matters of an individual. However, such individualistic risk assessment has been shown to deal poorly with long-term risks, risks that arise from slow trends and risks with non-linear probability.

 

Managing risk involves risk

 

Zero risk not available as even ‘do nothing’ is a pathway with risk. To theoretically reach a zero risk then requires an infinite investment in risk management which is unavailable. A risk owner must then balance their investment in risk management.

 

Any option to mitigate, monitor and/or develop response strategies to risk all absorb capacity and increase cost. Paradoxically, successful risk management actually means that nothing undesirable happens. Targeting nothing to happen is a difficult outcome to value and an outcome that raises questions by casual observers about the investment in risk management. 

 

Performing risk management is therefore a risk itself and a personal and immediate risk at that. In contrast to the task of risk management itself, the risks of climate change are usually impersonal and distant. The result is that without processes to avoid it, human behaviour takes over, driving three typical responses:

  1. Someone else's problem 

    In a formal and active risk management culture, a recognised risk is avoided ownership by informally considering the risk as part of some else's scope. The informal transfer leaves the nominated risk owner unaware. 
     

  2. Head in the sand 

    Regardless of whether or not there is a formal risk management framework, specific or even entire categories of risk are inappropriately set low likelihoods or ignored altogether. 
     

  3. Kill the messenger 

    Irrespective of the policy and procedure insisting that the risk be raised and analysed, the desire to avoid addressing what might actually be obvious leaves the risk unmanaged. Eventually, the proverbial 'elephant in the room' is identified by a team member who subsequently is tarnished as the cause for all the real and perceived costs of the resulting risk management.


A risk managed is a risk minimised, yet this is not what human behaviour responds to. Instead of lowering stress from the rational evaluation of now minimised risk, a risk managed provides additional stress through the requirement to role play of the negative outcomes of the risk in order to develop mitigation strategies.

 

Nearly everything about risk management is counter-intuitive on a personal level.

 

The most damaging impact of not truly managing risk is the poor metrics for project costing it provides and the resulting impact to the decision processes. The over-inflated costs impact the benefit-cost-ratio preventing viable projects from proceeding. Unfortunately, as the poor risk management persists in the delivery of the projects that survive, the whole process becomes self-justified.

 

The risk of not facing risk is the loss of opportunity - projects not progressed, the waste in addressing negative outcomes that need never have occurred and the social impacts from services delayed. The pathway to a climate responsible economy requires taking the opportunities and facing the risk.

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