Following the latest issue of Harvard Business Review I find a terrific article entitled "The 6 mistakes that executives make in managing risk "(The six mistakes executives make in risk management) written by Nassim N. Taleb (author of The Black Swan), Daniel G. Goldstein (Yahoo) and Mark W. Spitznagel. I'll write 2 posts about this article, this is the first.
The article begins with a truism, no financial model or economic forecasting prepared us for the impact of this crisis, and the consequences of it continue to surprise everyone. Moreover, as is known, crisis was almost caused by the use of risk management models from large financial, which eventually led them to take greater risks, instead of limiting your exposure to them, making the system become extremely fragile.
rare events and high impact are virtually impossible to predict, and these are increasingly dominating the global environment. Sept. 11, Katrina, the financial crisis, the earthquake in Southeast Asia. Globalization has made the world a complex, full of unexpected relationships. Risk management requires a change of focus, we should not try to predict unpredictable events, we must be prepared to withstand the impact of a big event.
could not run the risk predicting extreme events. Why? Because they are difficult to predict, and if we focus effort in doing so lose the opportunity to focus on other possibilities, ending by taking more risk.
We convince ourselves that the study of past not help us manage future risks. One of the things I repeated a lot during my education was that studying the past to learn from us and not to commit, but the future is full of errors that do not yet know we can make, precisely because there is no precedent! The First World War, Sept. 11, are events that have no historical precedent. We often hear the phrase "this is unprecedented " like an excuse, for precisely the greatest risks are in fact unprecedented, and for those who manage the risk in our companies this is a point to consider.
there anything in the way our society behaves called randomness socioeconomic status (Socioeconomic randomness), and it is that there are no typical failures, or successes typical. The company produces many effects such as "the winner takes all" and some statistics are very clear, 0.25% of companies in the world are responsible for 50% of the movement of capital, 0.2% of the books published are responsible for almost half the sales of books in the world, and 0.1% of drugs in the world are responsible for more than half of drug sales.
not hear the tips on what not to do. However, many Sometimes these recommendations have much more substance, for example, quitting smoking, the researcher Druin Burch said recently that the disappearance of the cigar in the world produce more benefits than the discovery of a cure for all known types of cancer. In the same vein, if financial institutions have been more careful in the recent past have been less exposed to the crisis and today would be much more settled, but obviously have less profit earned in previous years.
Companies should then incorporate risk management and consider it as an activity that creates value, we must begin to think about the business as a game of chess the great teachers focus on progress through the game and yet not to make mistakes like eating a piece left senseless novices focus solely on trying to win, and only seek to save their parts when the risk of losing is so obvious and inevitable .
