Managing risk: Thinking the unthinkable
Executives face unprecedented uncertainty today, and much of it is unthinkable: an oil spill of unprecedented magnitude in the Gulf, a deadly crash on Metro when an automatic train-control system goes haywire, a lightning strike of a business in a summer thunderstorm that seemed to come out of nowhere.
All of us are ill-equipped to handle the unthinkable because all of us are experts at suppressing the negative. When the unthinkable is woven into the fabric of daily living, it easily loses its identity. Yet decisions must be made in a milieu that includes the unthinkable.
How can an executive navigate successfully through a range of risks? What can be done when those risks threaten to negate obvious opportunity? Why do we erect an "Unthinkable Barrier?"
I see at least three reasons:
1. We believe that we lack the financial or psychic resources to face the unthinkable. Should we take time to address the potential of disaster, we fear that we would become dysfunctional in our existing work.
2. We think that by concentrating on maximizing opportunity, we can outweigh or offset the unthinkable loss. We think, "I can stay ahead of the accountability curve by running fast! The impact of ignoring the unthinkable won't hit for years."
3. We believe that by acknowledging the unthinkable, we bring it into existence. So, it is better to just let it happen, even if it devastates us.
We penetrate the Unthinkable Barrier in five ways:
1. We suffer a major loss. However we have managed to shut its possibility out of our mind, it bursts into full reality. An example is the death of a spouse, child, parent, or friend.
2. We accept the reality of the unthinkable through someone else's encounter with it. For example, we buy disaster insurance after an uninsured competitor is wiped out.
3. We experience gradual erosion. If enough implausible events occur enough times, these break down what we had always believed to be unthinkable.
4.We engage in contemplation, perhaps during retreats in a remote location. However, unless action follows such mental exercise, the Unthinkable Barrier is not pierced.
5.We adopt a mindset that regularly faces the consequences of the unthinkable. This destroys rather than punctures the Unthinkable Barrier. Using this approach during Project Apollo contributed to the success of those six manned missions to the Moon.
Mature executives examine all factors that influence success. Everyone's "bottom line" is the sum of opportunity's benefits minus risk's losses. To ignore even a portion of the latter because they are unthinkable is to contribute to the uncertainty.
Alarmists often use risk to intimidate, frighten, and incite. In deploring this misuse, we must not overlook the true reality of risk, that which executives ignore to their peril. Prudence suggests watching for three clues:
• Delegating all evaluation of corporate risk to subordinates, staff, or agency.
• Being so busy with opportunities that no time is spent on associated risks.
• Delaying any consideration of risk until all resources are allocated.
At the outset, we must identify every conceivable risk ahead of time, using a systematic method that is global in perspective.By applying systems methodology to risk termination, you can remove your Unthinkable Barrier and take charge!
Instead of letting disaster sneak up, you can "think the unthinkable." Risk examined isn't nearly as bad as risk repressed.
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