WiRM 6: Risk Managers

There are risk managers and there are Risk Managers.

To state the obvious, risk managers manage risks. They are the people who are responsible for managing the size, scope, nature, and timing of the risks faced within their organisations and areas of influence. Whether they come face-to-face with the risk in the field, or they work behind the scenes in an air-conditioned office, their decisions (and indecisions) determine which risks are faced, by whom, and for how long. Their primary responsibility is to ensure that these risks do not threaten their organisations’ operations and goals.

The preceding paragraph would be a general summary of risk managers and their responsibilities. The people we will focus on today however, are the Risk Managers (capitalised). They are the individuals who operate in the Risk Management environments we have discussed so far in this blog: dynamic, volatile, and uncertain, needing planning, preparation, and tactical decision-making to be navigated safely. Through years of work in these environments, they have developed the general Risk Management skillset which distinguishes the Risk Manager from the risk manager. We need to make that distinction because not all risk managers know how to manage risk.

All professionals are risk managers to some extent. Anything that could go wrong is a risk, and if it goes wrong on your shift, then it’s your responsibility to manage it. By a similar logic, all people at all times are risk managers because we all face risks which are ours to manage – as discussed previously here.

A restaurateur runs, and therefore manages, the risk that poorly-prepared food might poison their guests – an existential risk in that line of business. If you work in sales, losing a customer may be a risk for your company, and also for your future employment. A creche worker manages a rather unique set of risks (children can be unusually creative) which also comes with a heavy responsibility. The CEO of a company could be considered the CRMO too, since anything that goes wrong in the business is ultimately his fault.

Whatever your line of work, and whatever your status within your organisation, it is not trivial to think of yourself as a risk manager. However, that is not the perspective we are taking today. So, with the universality of risk noted once again, we will move on to the core of the discussion.

In this piece, we will introduce some of the canonical Risk Managers. These are people who operate in the aforementioned Risk Management environments and who have developed a skillset which is relevant wherever risks are managed. These people may use different words to describe their work, but they all speak the language of risk.

The Risk Managers

Army Generals

War is the quintessential Risk Management environment. It is big, complex, dynamic, and highly consequential. Anything could happen at any moment and one mistake could lead to ruin. The goal of war is winning, but winning is equivalent to survival. When the problem you are facing is an army with guns, tanks and bombs, the necessity of survival will be clear!

In wars, there are too many variables, too many options, and too many potential outcomes to analyse individually. You may have access to a high quality data at times, but you’ll rarely have enough of it to make the decisions for you. In these kinds of environments, you need strategy to guide your decision-making, not science.

Generals lead during wars because they are the senior strategists, but also because they are generalists (no coincidence). They have a broad knowledge of all their units and resources, and of the logistics required to move them around the battlefield. They will also be familiar with the enemy’s capabilities and their preferred tactics. The Generals’ broad knowledge base gives them multiple perspectives on the problem and their strategic skillset helps them to make the big decisions.

Scientists, in contrast, are specialists. They know a lot about a little, and it does not include strategy or conflict. With the help of engineers, the Scientists can be valuable during a war, but they cannot, and do not, and should not ever, lead the decision-making.

Fire-Fighters

You don’t need to have qualifications in engineering, thermodynamics, or any other scientific fields to be a fire-fighter, but you do, like a soldier in a war, need to have your skin all the way in the game. And fighting fires is very similar to fighting wars. The environment is volatile, reflexive, and dangerous, and the threat is always evolving. The goal as well is survival – of people, buildings, and of the fire-fighters themselves. The enemy may not be conscious or self-aware (though it might feel that way) but fire-fighters and army generals prepare themselves in much the same way: they do exercises and drills in quiet periods to spot weaknesses and to sharpen their responses, and they do as much planning as they can in advance so that they can ‘front load’ decisions and free up space to make necessary tactical adjustments as the battle unfolds.

Plans, strategies, exercises, drills, logistics, resource management… these skills and methods translate across Risk Management domains – but they could hardly have less in common with lab science!

Doomsday Preppers

In a way, doomsday prepping is an even more pure form of Risk Management than war. For Preppers, the battlefield is the whole Earth, the risks are everything that could possibly go wrong, and the goal is survival no matter what. Pandemics, volcanoes, nuclear war, solar flares, asteroids, zombies, or anything else that you can think of – a Prepper has to have a plan for it all. It’s the ultimate Risk Management challenge. Preppers are sometimes referred to as ‘survivalists’. This is very appropriate and it should reinforce in our minds the relationship between preparation, Risk Management, and survival.

What the Preppers are planning to survive is often the subject of ridicule, as are the methods by which they purport to achieve it. To be fair, some Preppers really are just big boys playing with their big boy toys (see the National Geographic episode below) but to dismiss Preppers wholesale as fringe weirdos would be a similarly juvenile error. Preppers are a paranoid bunch, but a healthy paranoia is an asset when managing risk. Most Preppers understand that they can only prepare for certain risks, and they are realistic about which ones they should manage e.g. power grid failure, civil unrest, hurricanes, or flooding. That said, the sensible ones don’t make for good viewing numbers.

Maybe it’s just me, but Prepping seems to have become more fashionable of late. I wonder whether the volatility of the last couple of decades (internet bubble, 9/11, 2008 financial crisis, Covid-19) has played a large part in that. Prepping forums are growing, more ordinary citizens are researching ‘off-grid’ living, and even the academics are getting involved. We now have research institutes in Oxford and Cambridge dedicated to prepping at a global level, as well as many other institutes and NGOs pursuing similar goals. If this focus on long-term resiliency is indeed a new trend, it is to be welcomed. The ideology of short-term (spurious) economic efficiency über alles has become catastrophic, and is in urgent need of replacement.

Financial Market Traders

Traders buy and sell securities in the financial markets. They have a given stock of capital, and they deploy it in the markets for profit. If things go well, they will make money. If things go badly, they will lose money. If things go very badly, then they will lose it all, at which point it is game over for them.

You might be sceptical of the idea that these people are risk managers like army generals or a fire-fighters, and you would be more right than wrong. Traders may put their capital on the line, but not their lives – and certainly not for the benefit of others! Still, the challenges they all face share more than a little in common: the environment is volatile and uncertain, there are big decisions to be made and often at short notice, and anything could happen at any moment to wipe them out. So, while the threat faced by the traders may not be visceral, they are still involved in a game of survival and the principles of Risk Management apply.

I included the financial market trader in this list of risk managers for two reasons. Firstly, to demonstrate again the common threads across dissimilar domains. Risk – even real-world risk – can be managed at a desk, in business casual. The second reason is that offers a convenient segway into the subject of our next piece – what is not Risk Management.

Closing Thoughts

Risk managers are the people who are notionally responsible for managing risks. However, not all risk managers know how to manage risk.

The real Risk Managers are people who have cut their teeth in Risk Management environments: volatile, uncertain, dangerous, many options, little data, and always with their skin in the game. Professionals who have survived these environments were only able to do so because they developed the Risk Management skillset.

In contrast, people like politicians and regulators are risk managers in name only because while their (in)decisions are hugely influential in determining the profile of risks faced, the nature of their work prevents them from ever learning the Risk Manager’s skillset. Inevitably, they make appalling decisions that cause millions to suffer. It was a bunch of pencil-pushers who decided that France didn’t need an emergency medical stockpile, and the Covid-19 pandemic exposed the lunacy of that decision. (What would a French bureaucrat ever know about risk?!)

Knowing who is a real Risk Manager and who is not will help you to know who to trust in a crisis and who to ignore – a very valuable skill, I hope you agree – and that will be the subject of our next and final piece in this series.