Uncertainty is rife, especially in these times of global geopolitical conflict and rising tensions that affect international economies. We live in an era managing risk comes with grave instability.
These days, companies must not only be really good at doing something specific; they must be used to doing new things that the times demand and call for. Those that survive are the ones that can read the signs of the times. They are the ones that thrive.
“Black swans” — events that rarely happen but when they do, they leave a deep impact — have before more common. In relation to this, risk management should therefore focus more on lessening the impact of things that we can neither understand nor predict. Risk managements should not be relegated as futile attempts to develop complicated systems and stories that perpetuate our illusion of being able to grasp and foretell social and economic upheavals.
In the book The Six Mistakes Executives Make in Risk Management, the authors Nassib Taleb, Daniel Goldstein, and Mark Spitznagel point out six misnomers that executives make in risk management:
- We imagine that we can manage risk by predicting extraordinary events.
- We are convinced that understanding the past will aid in managing risk.
- We don’t heed advice about what we shouldn’t do.
- We assume risk can be measured as any statistic such as standard deviation.
- We fail to comprehend that what equivalent mathematically isn’t the same in the minds of people.
Besides the five mentioned misconceptions above, two more are notable:
- There is a sense of complacency, especially amongst Filipinos, or a tendency to let things just happen or resolve themselves without any intervention.
- Filipinos tend to be overconfident and convinced that they know everything and cannot make any mistakes.
If Filipinos are to address the consequences of unpredictable risk, they must learn to be more open and learn how to read the “signs on the wall.”
