Carillion Struck By Lightning

@NilsPratley blames delusion in the boardroom (on a grand scale, he says) for Carillion's collapse. "In the end, it comes down to judgments made in the boardroom."

A letter to the editor of the Financial Times agrees.

"This situation has been caused, in part, by the unprofessional, fatalistic and blasé attitude to contract risk management of some senior executives in the UK construction industry."

By no means the first company brought low by delusion (I've talked some about Enron on this blog, as well as in my book on organizational intelligence), and probably not the last.

And given that Carillion was the beneficiary of some very large public sector contracts, we could also talk about delusion and poor risk management in government circles. As @econtratacion points out, "the public sector had had information pointing towards Carillion's increasingly dire financial situation for a while".



As it happens, the Home Secretary was at the London Stock Exchange today, talking to female executives about gender diversity at board level. So I thought I'd just check the gender make-up of the Carillion board. According to the Carillion website, there were two female executives and two female non-executive directors in a board of twelve.

In the future, Amber Rudd would like half of all directors to be female. An earlier Government-backed review had recommended that at least a third should be female by 2020.

Lombard: Sir Philip to review why so few female senior executives. He could use a beefed up UK's governance code to propel women to top jobs

— kate burgess ft (@katebur95633594) February 9, 2016

But compared to other large UK companies, the Carillion gender ratio wasn't too bad. "On paper, the directors looked well qualified", writes Kate Burgess in the Financial Times, noting that "the board ticked all the boxes in terms of good governance". But now even the Institute of Directors has expressed belated concerns about the effective governance at Carillion, and Burgess says the board fell into what she calls "a series of textbook traps".

So what kind of traps were these? The board paid large dividends to the shareholders and awarded large bonuses to themselves and other top executives, despite the fact that key performance targets were not met, and there was a massive hole in the pension fund. In other words, they looked after themselves first and the shareholders second, and to hell with pensioners and other stakeholders. Meanwhile, Larry Elliott notes that the directors of the company took steps to shield themselves from financial risk. These are not textbook traps, they are not errors of judgement, they are moral failings.

Of course we shouldn't rely solely on the moral integrity of company executives. If there is no regulation or regulator able to prevent a board behaving in this way, this points to a fundamental weakness in the financial system as a whole. As @RSAMatthew writes,

"There are many culprits in this tale. Lazy or ideologically blinkered ministers, incompetent public sector commissioners, cynical private sector providers signing 'suicide bids' on the assumption that they can renegotiate when things go wrong and, as always, a financial sector willing to arbitrage any profit regardless of consequences or ethics."

There is a strong case that diversity mitigates against groupthink - but as I've argued in my earlier posts, this needs to be real diversity not just symbolic or imaginary diversity (ticking boxes). And even if having more women or ethnic minorities on the board might possibly reduce errors of judgement, women as well as men can have moral failings. It's as if we imagined that Ivanka Trump was going to be a wise and restraining influence on her father, simply because of her gender.

As it happens, the remuneration director at Carillion was a woman. We may never know whether she was coerced or misled by her fellow directors or whether she participated enthusiastically in the gravy. But we cannot say that having a woman in that position is automatically going to be better than having a man. Women on boards may be a necessary step, but it is not a sufficient one.

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Martin Bentham, Amber Rudd: 'It makes no sense to have more men than women in the boardroom' (Evening Standard, 15 January 2018)

Mark Bull, A lesson on risk from Carillion’s collapse (FT Letters to the Editor, 16 January 2018)

Kate Burgess, Carillion’s board: misguided or incompetent? (FT, 17 January 2018) HT @AidanWard3

Larry Elliott, Four lessons the Carillion crisis can teach business, government and us (Guardian, 17 January 2018)

Vanessa Fuhrmans, Companies With Diverse Executive Teams Posted Bigger Profit Margins, Study Shows (WSJ, 18 January 2018)

Simon Goodley, Carillion's 'highly inappropriate' pay packets criticised (Guardian, 15 January 2018)

Nils Pratley, Blame the deluded board members for Carillion's collapse (Guardian, 15 January 2018)

Albert Sánchez-Graells, Some thoughts on Carillion's liquidation and systemic risk management in public procurement (15 January 2018)

Rebecca Smith, Women should hold one third of senior executive jobs at FTSE 100 firms by 2020, says Sir Philip Hampton's review (City Am, 6 November 2016)

Matthew Taylor, Is Carillion the end for Public Private Partnerships? (RSA, 16th January 2018)


Related posts

Explaining Enron (January 2010)
The Purpose of Diversity (January 2010)
Organizational Intelligence and Gender (October 2010)
Delusion and Diversity (October 2012)
Intelligence and Governance (February 2013)
More on the Purpose of Diversity (December 2014)


Updated 25 January 2018

The Price of Fish

Michael Mainelli and Ian Harris have written a wide-ranging survey of economics, choice theory (game theory, psychology and ethics), systems theory, chaos theory, global warming and evolution. So what's all that got to do with the price of fish?

One of the themes running through the book is that the price of fish bears no relation to the value of fish, especially if we are concerned about long-term value and the sustainability of fish stocks.

Oscar Wilde famously defined a cynic as one who knows the price of everything and the value of nothing. This definition has also been applied to accountants and economists. Michael and Ian are leaders of the Long Finance initiative, a movement within the City of London that aims to overcome this kind of short-term financial cynicism.

Michael and Ian describe the price of fish as a wicked problem - a problem that lacks easy definition as well as easy answers.  "Sustaining the supply of edible fish is a wicked problem that presents global risks." (p 301) And yet they suggest that the system might possibly sort itself out. "As fish run out and have to be sustainably fished, the historic underpricing of fish ceases." (293)

But this is no time for naive optimism, and the system will undoubtedly need some intervention. "When the price is the same as the value, there are opportunities for sustainable financing. So far, price has not equaled value for fish. This is the biggest, wicked decision-making problem of all: knowing how to set a price that equals the value." (p 295)

In other words, the problem is not just the alarming dwindling of fish stocks but the collective cynicism that not only led to this problem but also amplifies it and resists dealing with it effectively. The key word in the problem statement is the word "set" - even if a few clever people can agree what the right price of fish should be, the real challenge is to set this price into global trading and consumption systems.



While the survey is light on the sociopolitical elements of the problem, the authors complain that governments have often made things worse, by inappropriate regulations and subsidies. Thus lazy or short-term thinking on the part of government is another manifestation of cynicism.

The Wikipedia article What's that got to do with the ...? derives the phrase from the alleged tendency of economists to connect everything with everything else. The authors go much further in this respect than most economists. But one trouble with systems thinking is this: once you start it's difficult to know where to stop. (In systems thinking circles, this is known as the warning of the doorknob.) Although the authors have covered a great deal of material, it's not hard to think of other stuff they could have mentioned.

I don't think the authors are in any hurry to write a sequel, but if they did it might be about the Price of a Bee. While fish are undervalued, bees (apart from those involved in honey production) have no direct economic value at all; but when the bee population is threatened, global agriculture as a whole is in serious jeopardy. The indirect value of bees is vastly greater than the market for honey. Under the right conditions, with appropriate political and financial systems, people and communities may be able to make long-term ethical investments in sustainable fisheries, with a reasonable prospect of a long-term financial return: the Long Finance initiative is trying to stimulate the kind of system change that will create these conditions.  But how on earth do we get communities to invest in the world bee population, without creating a market for bees? And would we really want that? Systems thinking tells us to be careful what we wish for. (Mary Catherine Bateson calls this The Revenge of the Good Fairy.)

Systems thinking also tells us that management (both public sector and private sector) has a tendency to over-intervene, to meddle and micromanage and ultimately make things worse. On the other hand, doing nothing doesn't feel like a good option either. (See Owen Barder on Good Global Citizenship, January 2013.) But there may be some kind of leverage or nudge that might just help a complex system to avoid catastrophe. It is always difficult to steer a path between naive optimism and pessimistic fatalism, but the battle against cynicism requires that we try.

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Price of Fish website
Long Finance website
Wikipedia What's that got to do with the ...?

For the warning of the doorknob, see my post We Ought to Know the Difference (April 2013)

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Matt McGrath, Dispute means mackerel is no longer catch of the day (BBC News 22 January 2013)

Timothy Taylor, Do markets work for bees? (10 July 2014)

Related post: The Price of Everything (May 2017)


10 July 2014

Whose target is it anyway?

"The IMF downgrades its growth forecasts and casts further doubt on Osborne meeting his debt target" reports @JJ_159 via @Spectator_CH. @EmmaLangman suggests (sadly) that that it is 'our' debt target by association. "What Chancellor chooses, the country lives through."

So let me consider perhaps the most famous target of all time - the apple which the Swiss tyrant Gessler required William Tell to shoot from his son Walter's head. Gessler sets the target, William Tell hits the target, the son survives, Tell subsequently assassinates Gessler, and the Swiss people achieve their freedom.

Wikipedia: William Tell

Altogether now: dadadum dadadum dadadumdumdum ...

There is always another story

Steve Jobs talks about death

"About a year ago I was diagnosed with cancer. ... It turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I'm fine now." [Stanford University, June 2005]

But according to some sources, there is a critical omission from the story. The diagnosis was in October 2003. Jobs spent several months trying alternative medicine before agreeing to the surgery, which took place in July 2004. Some cancer experts believe this delay may have shortened his life.

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Polarity

Jobs himself judges the world in binary terms. Products, in his view, are "insanely great" or "shit." One is facing death from cancer or "cured." Subordinates are geniuses or "bozos," indispensable or no longer relevant. People in his orbit regularly flip, at a second's notice, from one category to another, in what early Apple colleagues came to call his "hero-shithead roller coaster." (Fortune Magazine 2008)

Some might think that this was at odds with his Buddhist beliefs: Polarity is an Illusion, Oneness is a Reality.

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Risk

It is important to understand the ways in which Jobs' attempts to manipulate his world pose risks for Apple - and thus its investors. They are evident in his difficult partnerships with music and television companies, which chafe at his insistence on setting uniform prices for their songs and videos on iTunes; in the real story of his battle with cancer; and in his deployment of stock options at Apple and Pixar, which exposed both companies to backdating scandals. (Fortune Magazine 2008)

The risks here come not only from the attempts to control everything, but from the polarity, delay and denial, which emerges from the way he tackled his cancer as well as in the way he ran Apple.

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Storytelling

Writing in the Guardian, in the week Jobs died, Charlie Kaufman reveals something important about story-telling. He wasn't talking explicitly about Jobs, but as Matthew Creamer points out, he might as well have been.

Storytelling is inherently dangerous. Consider a traumatic event in your life. Think about how you experienced it. Now think about how you told it to someone a year later. Now think about how you told it for the hundredth time. It's not the same thing. Most people think perspective is a good thing: you can figure out characters arcs, you can apply a moral, you can tell it with understanding and context. But this perspective is a misrepresentation: it's a reconstruction with meaning, and as such bears little resemblance to the event.

The other thing that happens is adjustment. You find out which part of the story works, which part to embellish, which to jettison. You fashion it. Your goal is to be entertaining. This is true for a story told at a dinner party, and it's true for stories told through movies. Don't let anyone tell you what a story is, what it needs to include. As an experiment, write a non-story. It will have a chance of being different.

Meanwhile, some reviewers of Walter Isaacson's authorised biography of Steve Jobs are questioning whether it is a true representation of the man - see revew roundup by Clare Spencer.

Is a single true representation possible - of anyone, let alone Jobs? Brent Shlender writes

"Most of us who wrote in depth about the brilliant career of Steve Jobs sooner or later came to realize that we were complicit in the making of a modern myth. ... Nevertheless, Steve was merely mortal. And his storied life was one of dissonances and contradictions."

Bureaucracy and Risk

@jasongorman Bureaucracy doesn't reduce the risk of making mistakes, it reduces the risk of making decisions.

retweeted by @ashalynd @barendgarvelink @carloslemes @claussni @fabiogasparro @fabio_nb @fpaiano @jerrygulla @jonmholt @keesvandieren @KevlinHenney @mfeathers @MrAlanCooper @Richardgab @rmHeise @rpepato and others.

I think there is a lot of truth in this statement. However, as a general rule of thumb, I hold that when one makes statements about risk one should specify whose risk you are talking about.

Bureaucracies typically evolve procedures for making decisions, which may help to eliminate certain types of error, but may make other types of error more likely. Bureaucracies also evolve responsibility structures that reinforce certain modes of decision-making and action, and inhibit others. At least in the short term, employees take less personal risk when they conform to these procedures and structures, even when the decisions have bad consequences for other stakeholders, and may create longer term problems for the organization itself.

@richardveryard When a person makes a decision within the rules of a bureaucratic system, the system protects the person from risk.

@ashalynd True, but then the success of the whole organization depends on how good are its rules.

There are various ways of viewing the short-term or long-term success of an organization. Again, we need to ask - success for whom, from which perspective. Inflexible organizations may appear to be successful in the short term, but if they lack requisite variety, they will fail to respond adequately to changes in their environment, and may ultimately become non-viable. 

For a rule-driven organization, the flexibility (requisite variety) depends on the degree of agility and intelligence that is embedded in the rules and their interpretation. I guess this is what @ashalynd means by the quality of the rules. It is not impossible for a bureaucracy to have some degree of agility, but rules usually leave a lot to be desired.

@richardveryard The success of the whole organization depends on the fit between the structure of rules and the structure of demand.

@jasongorman What does that mean - "the structure of rules" and "the structure of demand"?

The ability of the organization to behave in an agile and intelligent way depends on whether the flexibility (degrees of freedom) built into the rules and other working practices is aligned with the kinds of direct and indirect value (demand) which the organization needs to deliver. The question of alignment is ultimately a structural question.

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See also Robert Jackall, Moral Mazes: Bureaucracy and Managerial Work (HBR, September 1983)

Bearing Limit and Financial Regulation

An excellent keynote address by Avinash Persaud at the Long Finance conference yesterday, in which he deployed a few apparently simple ideas about risk management to mount an eloquent and powerful critique of the Basel 3 regulatory regime.

Here is a crude summary of some of the key points of Persaud's argument

1. Regulation should be counter-cyclical. Credit mistakes are made during the boom and exposed during the downturn. Regulation therefore needs to be stricter during the boom and relaxed during the downturn.

2. Basel 3 attempts to regulate risk in terms of risk sensitivity. This concept has several flaws.

• It focuses on the private risks to banks and their shareholders, rather than the public risks to system and society.
• It is based on the market price of risk, which is cyclical and therefore cannot support counter-cyclical regulation.
• It assumes that all risk is homogeneous.

3. Financial risk is not homogeneous. There are different types of risk, which call for different kinds of hedging over different timescales. Persaud identified three types.

• Credit risk denotes the risk that a given creditor will be unable to pay. This risk is mitigated by having a portfolio of uncorrelated creditors, and assuming that the failure of each creditor is a statistically independent event.
• Liquidity risk denotes the risk that a given asset cannot be sold at short notice for the desired amount. This risk is mitigated by a preparedness to hold assets for long periods.
• Market risk is a combination of credit risk and liquidity risk.

3. Banks are good at dealing with credit risk and bad at dealing with liquidity risk. Insurance companies and pension funds should be good at dealing with liquidity risk, provided they are not forced into inappropriate measures by stupid regulation.

4. Sustainable long-term investment entails liquidity risk. A regulatory regime that supports credit risk and fails to support liquidity risk tends to militate against sustainable long-term investment. But this is exactly the outcome of the Basel 3 regulations, according to Persaud. Instead, he argues, we need a regulatory regime that encourages firms to take appropriate long-term risk, according to their risk absorptive capacity.

5. The Basel 3 regulations force risk to be misallocated, because of a failure to appreciate time and its effect on risk. The goal of regulation should not be on reducing risk sensitivity but on increasing risk absorptive capacity.

6. The Basel 3 regulations therefore represent a missed opportunity for financing sustainable activities and longterm finance.

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Note: In our risk management work, we use the term Bearing Limit, which roughly corresponds to what Persaud calls Risk Absorptive Capacity.

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Papers by Avinash Persaud:

• Liquidity Black Holes (pdf) April 2003 
• Regulation, valuation and systemic liquidity (pdf) October 2008
• How risk sensitivity led to the greatest financial crisis of modern times. VOX, 7 October 2008.
• The Empire strikes back. VOX, 14 September 2010

The Future of Cash

Adam Shostack posts on The Recent History of the Future of Cash. He points out that the choice between cash and electronic payment systems is influenced by questions of trust. In some countries with high inflation, people don't trust cash. But people also don't trust complex and unreliable electronic systems.

Lack of trust increases transaction costs. If I am constantly on guard because of unexpected charges on my account - whether this is due to error or fraud, or simply because the service provider is pocketing a fee for something - then I may have to maintain transaction archives, or copy every transaction into a separate spreadsheet or database. Adam links to a post by Gary Leff, who prints out everything he can think of because he is expecting to be cheated out of some complicated deal on frequent flier miles. This kind of thing is symptomatic of the shallow and short-sighted version of the Support Economy.

Meanwhile, when I buy a book from my local bookshop, the shop accepts cash or debit cards. But if I use a card, the bank will take a cut of the transaction (from the shop). So I prefer to pay cash if I can: cash doesn't really cost me any more than card, but I prefer the shop to get all the money.

Some people feel safer just carrying a card, because cash can be lost or stolen. But which is the greater risk - being mugged by a drug addict in the street, or being ripped off by a major corporation? Different people balance those risks differently.

Quarantine 2

A parrot infected with H5N1 dies in quarantine (BBC news). Does this mean that quarantine works, or at least has worked in this instance, to protect us from bird flu?

In a contrasting example, sniffer dogs, returning to the UK from earthquake duty in Algeria (BBC News) and Kashmir (Reuters), are forced to undergo quarantine (making them unavailable for further duties for six months, including protection against terrorism). Does this mean that quarantine is stupid and inflexible? Is this yet another example of interference (poor interoperability) between different security systems?

Even in this case there is a possible justification for quarantine, since it seems reasonable to suppose that a dog operating in a crisis zone such as Kashmir or New Orleans might be at greater risk of disease. The dog is doing dangerous work, and is highly likely to receive scratches and other minor injuries through which germs can enter. And there are more germs, as well as stray dogs, rats and other threats.

Rescue dogs are in a similar position to human medical staff - they are more likely to catch things. Of course they have all the possible jabs, but is that enough? And of course they have plenty of opportunity to transmit things to people who are already weak and are therefore particularly vulnerable to infection. Do you want to be bitten by the dog that pulls you from the rubble?

So there is a complicated risk trade-off calculation going on here. Who is going to do this risk calculation? The existing systems and regulations may produce absurd results, but what is the alternative? The Home Secretary overturns the regulations?!?

Meanwhile, what about young men with strong religious beliefs, who go to foreign countries to provide earthquake assistance. The UK security forces will find it hard to work out which ones have had contact with dangerous influences, and will therefore be obliged to put all of them into some kind of virtual quarantine (e.g. close surveillance) on their return.

How effective, efficient and fair is any given security mechanism, and what are the unwanted side-effects?

See also Quarantine 1 (October 2005)

Quarantine

Question

Banks are highly aware of some types of threat, but seem to ignore other types of threat. How can you have a secure system in which one party is systematically blind to a particular class of threat. You would have to hold them in some sort of quarantine.

Answer

How can you have a secure system that only works if all the parties are completely free of conceptual limitations?

I think my children are systematically blind to certain things. (No doubt they think I'm systematically blind to certain things.) This means I trust them in certain contexts/situations and not in others.

A guard dog can provide some degree of security, can be involved in a secure system. That remains true despite the fact that dogs are unable to recognize certain classes of threat, and you certainly wouldn't delegate the design of the whole system to the guard dog. Why can't we say the same about a bank?

You put a dog into quarantine because you think it might have rabies, not because you think dogs are stupid. Banks aren't stupid either.

Quarantine may be a useful architectural pattern in certain situations. It protects against delayed attacks - such as a disease with an fixed incubation period, or a software virus. An entity remains in quarantine until it can be properly scanned and disinfected, or until the disease emerges and runs its course, or until the incubation period expires. (For example, a software artefact might be presumed free of a Friday 13th software virus if nothing detectable happens on Friday 13th.)

However, guard dogs need to be contained - for their own safety as well as the safety of others. They must be protected against specific attacks - the burglar who tries to feed them with drugged meat, or to confuse them with extreme smells. When dogs bark their heads off, these reactions need to be properly interpreted. And when a dog doesn't bark in the night, this may provide an important clue to what happened (Sherlock Holmes)

Similarly, banks might need to be contained, and their activity (and inactivity) interpreted. (But I don't think this counts as quarantine.) But whether this is necessary (or even meaningful) depends on the architecture of the whole collaborative system.

See also Quarantine 2 (October 2005)

Differential Adoption

Where there are two competing technologies in a given space, we may be able to learn something interesting from the differential patterns of adoption. (In studying a technology in relation to its adoption space, we get a better understanding of both.)

RSS and Atom represent two competing standards for internet syndication. James Snell recently posted a quick note of some of the technical differences: So what's the deal with Atom? He has now discovered some evidence of differential adoption between RSS and Atom. It turns out RSS and Atom really are different.

However, we need to interpret this evidence carefully. Technology often goes in clusters - one technology drags other technologies on its coattails - and it is not always obvious which technology is the determining factor in the user selection.

(In biological evolution, there is a phenomon known as genetic coupling, which links together apparently distinct features and prevents them from developing independently of one another. Thus natural selection doesn't prove the advantages of a single feature in isolation, merely the aggregate advantages of some group of features. Similar coupling often happens with interdependent technologies, and this complicates the study of technology adoption.)

In this particular example, the user preference for either Atom or RSS is correlated to a user preference for different news readers (e.g. Bloglines versus RSS readers).

• Bloglines readers are more likely to subscribe to Atom.
• Atom readers are more likely to use Bloglines.

There are many possible ways of explaining this correlation. Maybe this has something to do with the characteristics of the Bloglines user (of which I'm one). Or perhaps it has something to do with the design of the Bloglines subscription mechanism. Where a blog offers both an RSS feed and an Atom feed, Bloglines readers are given the choice. (For my part, I always choose the Atom feed.)

In his recent book Democratizing Innovation (free download here), Eric von Hippel discusses lead users and identifies three characteristics as follows:

• ahead of the majority of users in their populations with respect to an important market trend,
• expecting to gain relatively high benefits from a solution to the needs they have encountered there,
• and a significant source of innovation - many of the novel products they develop for their own use will appeal to other users too and so might provide the basis for products manufacturers would wish to commercialize
  

James Snell refers to this book, and suggests that Atom users may be lead users in this sense. But the differences between Atom and RSS (as described by James) don't seem to warrant this suggestion. Is there any evidence that these Atom users are actually exploiting the technical differences between Atom and RSS, and/or generating significant quantities of user-centred innovation?

Technorati Tags: Atom-enabled innovation RSS technology adoption

Is Regulation a Drag?

Is regulation a drag on innovation?

Here's an example to explore. Following the ChoicePoint scandal, there have been some proposals in the USA to tighten privacy.

Adam Shostack writes: "A number of smart people (for example, Jim Harper writing on Politech) critique the drag on innovation that such a regime entails. I'm very sympathetic to this critique."

Innovation often generates risk, not just for the innovators but for other parties within the ecosystem. Some campaigners oppose some kinds of innovation altogether, on the grounds that the risks are unbounded and unacceptable. This argument has been used against nuclear energy and GM food.

But if we think a particular innovation should go ahead, there is still a question of risk management and governance. There is no reason why unnecessary and foreseeable risks should be taken, and it is surely appropriate to ensure that innocent bystanders are not unduly put at risk. This principle is now widely accepted in many domains.

There were many historical innovations that seriously endangered or poisoned the engineers and their neighbours. If present-day Health and Safety legislation and Anti-Pollution regulations had been in force, the industrial revolution might never have happened. Perhaps some engineers hanker for the old days of reckless entrepreneurial experiment, but I don't want to live next door to someone who is developing a new kind of explosive in his garden shed, thank you very much.

That doesn't mean I think regulation is the best mechanism for governing risk. And I don't for one moment imagine that we can remove all risk and uncertainty from our lives. But where innovation involves serious and obvious risk of loss, especially to other people, I think it is reasonable to insist on some kind of governance mechanism.

Trust Cycle

Interesting press release from researchers at the University of California at San Diego.



Pharmacy dispensing volumes spike at the start of each month, because of the timing of government assistance payments . This leads to a spike in medication errors, resulting in a spike in mortality.



Thus trust goes in cycles. At some times of the month you get a rushed service, with little opportunity for personal (authentic) interaction. At other times, the pharmacist may be able to spend a little more time on each item, not just checking the technical correctness of the medication but also relating to the patient as a person.



There are three types of risk that may be affected by this cycle.

• Implementation risk - is this correctly dispensing what was prescribed?
• Composition risk - how does this medication interact with anything else the patient is doing/taking?
• Intention risk - is this the right prescription for this patient?

Trust is not reduced to a matter of technical competence, but embraces the human interaction (or lack of it) between the pharmacist and the patient.

original press release (January 5th, 2005)

relayed in ScienceDaily and in LeaderLog

POSIWID thinkers may note that the negative impact of this phenomenon falls disproportionately on those dependent on government assistance, thus effecting a kind of triage. God forbid there is any purpose in here.

Safe is Risky

Seth Godin markets the slogan Safe is Risky. Presumably the converse slogan also applies: Risky is Safe.

Seth's latest example is of a book launched on Amazon before the US election, which predicted the result. Of course, a clever but cautious journalist could write two different books before the election, with two different titles. If one of the books was a best-seller, it wouldn't matter that the other was a flop. If this is risk, it looks like a pretty safe kind of risk.

Meanwhile military thinkers such as David Alberts are adopting new modes of decision-making in relation to risk. Here is a brief summary of one aspect of this, posted by USN LDO (Ret).

The old way (conventional way) of decision-making… waiting to gather the maximum amount of information (intelligence) possible, minimizing (or what you think is minimizing) risk, and focusing on (more like worrying about) the unknowns (instead of focusing on what you do know).

Instead, we should make decisions rapidly (with “relative” speed) focusing on what is known in order to cease the initiative and disrupt (get into) the enemy’s decision cycle.

Several brilliant and thought-provoking works by Alberts are available free from the DODCCP website.

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Update: I have removed the link to the Military Transformation blog, formerly maintained by USN LDO (Ret), because the domain appears to have been captured by someone else. I remain grateful to USN LDO (Ret) for introducing me to Alberts, but I am now a little embarrassed that I reproduced his rather clumsy and mis-spelled summary, rather than taking the trouble to write one myself. My apologies to racingsnake, and to Alberts himself.

Diana and the baker

originally posted by John

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Properly done risk management enhances trust. Balancing strategy and technology with authentic human behaviour is the beginning. Here’s a quite perfect illustration of the power of Scimitar’s perspective model at work:




Back in 1999 (Bruce Schneier relates in his latest newsletter on the above link) Diana Dean, a US customs agent on the Canadian border did her work with the kind of authenticity so lacking in my Sainsbury’s baker. Thanks to her, a car-load of explosives was intercepted and LA airport was spared a devastating holiday-season bomb disaster. If she’d used the available computerized profiling technology like the baker used his in-store oven things could have turned out differently. Sainsbury’s could do with a whole load of Diana Dean's authentic behaviour. The quality of the bread probably wouldn’t improve but customers’ tempers – and their inclination to buy stuff – certainly would.

Trust the technology

originally posted by John

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When is an in-store bakery like a life-support machine?



This riddle popped into my mind as I called for bread after listening on the car radio to a discussion on the government’s proposed legislation on the ‘living wills’ of people on life-support.


Scimitar’s perspective model prompted it. This is the tool we use to try to develop a risk-manageable balance between a firm’s strategy, and the combination of technology and people it uses in trying to achieve it. There is an inherent risk that the technology constrains the people to such an extent that they become detached from the strategy and ultimately detached from their work. Risk management is impossible without this state being addressed. So is trust.


Seen from this perspective, the technology of life-support systems keeps people alive who are detached from life’s generally agreed strategy. My hope is that the legislation is aimed at doing something about it in terms of restoring some trust. The in-store bakery in my local Sainsbury’s does the same for the guys making bread. But nobody seems to be doing anything about it at all.


‘Any organic?’ I asked the guy in the baker’s hat. He looked at the meter on his oven and said ‘five minutes.’ I came back after a stroll round the store. ‘Large white organic, please,’ I said. ‘Only doing wholemeal today,’ he replied.

Notes on Failure and Blame

Identifying the causes of failure may be an essential condition for organizational learning. Refusal to blame may lead to a refusal to understand, or even a denial that failure has occurred / is occurring. 

However, where problems are systemic or due to process design, blaming individuals obscures the problem. A blame culture also leads to an avoidance of risk. 

 

Component as scapegoat - a part takes the blame for the whole

I have lost count of the number of analyses I have read about NASA and the failure of the space shuttle. Blame the O-ring. Blame the management. Blame the narcissism of the organization [Schwartz]. 

What was most striking about these investigations, especially in the early days as the press speculated on the findings, was the tendency to focus on what, in particular, had caused the problem. It had the flavour of trying to find an appropriate scapegoat, so that certain parts of the system could be free from blame. [Smith and Berg, p 156] 

Individual as scapegoat - a person takes the blame for the system

In both health and transport, there is a tendency to blame individuals for faults in the system. Individuals are characterized as Bad Apples, as if this acted as a satisfactory explanation or excuse. 

A recent British TV programme showed a number of cases of health workers whose careers were ruined by a single error. A nurse who picked up the wrong injection after a 30 year unblemished career, and killed the patient. A pharmacist who failed to distinguish between two almost identical packs. (Obviously higher status professionals don't get scapegoated so easily.) 

By blaming the individual, the system remains unaffected. Blame is therefore a mechanism for preserving the system.

 

With transport (e.g. rail crashes) we have two opposite tendencies. One is to automatically blame the driver or the pilot. The other is to postulate some outrageously expensive piece of technology, such as a state-of-the-art signalling and braking system, and claim that this technology would have magically eliminated all risk. The fault then lies with The Management for being too mean to invest in this life-saving technology. 

Grief (for example the bereaved relatives) can then be converted into anger. With rail crashes, the driver's often among the dead, so it's apparently better for the relatives (and the media) to have a living target for this anger (and revenge). Another mechanism which sustains a blaming culture.

And then there's the lawyers. 

 

Examples

Schrecklichkeit (August 2004), A Bit of a Dump (April 2008), Emotional Intelligence (September 2010), The Quantum Organization (November 2015), Jaywalking (November 2019)

 

References

H.S. Schwartz, Narcissistic Process and Corporate Decay: The Theory of the Organizational Ideal (New York: New York University Press, 1990)

K.K. Smith and D. N. Berg, Paradoxes of Group Life (San Francisco: Jossey Bass, 1987)

 

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Originally published at http://www.veryard.com/tcm/failure.htm 26 July 2004

Bearing Limit and WMD

From the Butler Report on WMD:

"... more weight was placed on the intelligence than it could bear ..."

In our risk management practice, we have for many years been using the term "bearing limit" to refer to the capacity of a unit to contain risk or uncertainty. (Among other things, the term is a punning reference to the downfall of Barings Bank, brought down by the activities of Nic Leeson, a so-called rogue trader who exceeded his bearing limit.)

The example of WMD intelligence now extends this notion of bearing limit to cover knowledge and intelligence.

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The term "risk-bearing limit" is used in a Sept 2001 paper Reflections on New Financial System in Japan (pdf)

A notion of bearing limit is widely found in mechanical engineering, although it can also be found in horticultural systems. (Fruit Thinning)

Leadership and risk management

originally posted by Aidan

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One of the tenets of risk management is that risks are best managed by those with the power proximity and interest to do so. Peoples' desire for leadership may be an irresponsible abdication of their interests to the group and to the leader (look for instance at the typical process when we join an organisation) or it may be a responsible loyalty to the goals the leader can articulate and eventually deliver. The difference between these lies in the follower, not in the leader, but the leadership style is important in evoking one or the other.


Richard's post makes it clear that the question of what is important and what needs paying attention to is never simple. To portray it as simple is to disable the contribution followers can make to the complexity and the management of risk. It is far too easy to support leaders in the mode that says they are responsible for the failures only I could have prevented.