Our guest, Alex Sidorenko, is an experienced executive across strategic, investment and operational risks and insurance working within multibillion dollar corporations in Australia, GCC and Europe. He successfully implemented changes to quantitative risk analysis, risk-based decision making and neuroscience and saved more than $13 million per year in premiums on cargo and PD/BI insurance through industry leading quantitative risk analysis without changing deductibles or limits. He successfully presented a corporate risk profile at the Ministry of finance and helped secure more than $1B in extra funding. Author of the most popular free risk management book in the world, with more than 150K downloads in 3 languages. Risk manager of the year, FERMA, 2021, Honourable mention 2021, RIMS. Risk manager of the year, RUSRISK, 2014, Best ERM Implementation, RUSRISK, 2014, Best risk management training, RUSRISK, 2013, 2014, 2015, finalist in risk management awards in 2018 and 2019 We have seen the catalytic power of conversations in the work that we do, as well as the impact that it brings to our world.
Living Room Conversation with Alex Sidorenko
Transcript:
Welcome to the 50th Episode of Life Sciences living room conversations my name is Claudia Stadler and I’ll be your host for today in our living room conversations we like to explore ideas and share thoughts and dive deeper into topics around teal self-management agility and the future of work so I’m looking forward today to our special guest Alex sidorenko and share his thoughts with him and US Alex is an accomplished risk manager and he has successfully worked in this capacity in quite some corporations around the globe and he’s the author of a free guide to effective risk management and absolutely passionate about sharing his profound knowledge in blocks YouTube videos in his courses and I’m really happy and super excited to have him here today with us so let’s invite Alex to join us on the couch and talk to us about debunking the myth of risk management in the context of teal hi Claudia so thank you thank you for having me um my last three roles were the um Chief risk officer of a large Sovereign Fund in Europe um Chief risk officer of a 10 billion dollar fertilizer company a global company and a head of risk operational risk and investment risk and insurance at a group of companies like a 25 billion dollar group of companies Global as well and so in in kind of in between jobs I uh I run a Blog called risk Academy and I run the risk awareness week every year and I I do have a quite a popular YouTube channel so my kind of I have my two two hats on my working day hat as the senior risk executive and my evening hat which is the hobby of just writing blogs and you know shooting shooting videos but I I was particularly interested in speaking uh with you and your audience because what I’ve noticed in my role as the kind of this you know senior risk executive is when I come to other departments When I visit other parts of the of the company um they have huge they usually have like a well-established process for making decisions and or for planning or for forecasting there’s usually like there’s a textbook on how to calculate the investment proposals there’s the book on textbooks and courses on budgeting um and and so teal management is kind of this new I don’t know how new but anyway it’s it’s it’s yet another way of thinking about doing business and what I’ve observed is that most of the disciplines most of the business disciplines if evolving almost in the vacuum they they kind of they they come up with this new ideas and approaches and methodologies and they touch the different hypothesis but they often do that disregarding the kind of the uh the other parallel sciences that have been going on around not realizing that the problem that they’re trying to solve has already been solved by somebody 70 years ago in a completely different field and yet it’s completely applicable um and so I I thought this would be an amazing opportunity to kind of to bring the two conversations you and the teal management side and me kind of on the risk side um breaking some of the aspirations because there are maybe some great ideas until management um until they break against the reality of like Neuroscience or you know mathematical side of risk where we have to kind of you we have to balance uh these different fields of study to to come up with something truly useful I love this I love this approach and I love this idea because um I myself I have been a Certified Financial Risk manager but I must say not any longer and then I really thought okay how does risk management come in here and then then talking to you seeing this thing about risk awareness is really really fascinating so I think there’s loads to share and loads to learn for exactly this environment we are in but let me maybe start with something would you be ready to share something about you how did you get into risk management what what’s Drew you there sure sure uh I I am I am one of the very few people in the world that have an undergraduate bachelor degree in Risk Management in fact me and about 20 other people we were the first ever bachelors in Risk Management in one of the Australian universities um which was quite ironic because the university canceled that degree a few years later so I I was I was a guinea pig in a failed experiment I’ve got my diploma in Risk Management I’m I’m like as risk management as you can get because normally people just kind of deviate to risk management from other Financial or accounting um or even engineering or mathematical backgrounds but I I am as like as as qualified as a risk manager can be with an undergraduate degree which no longer exists so clearly it wasn’t a good idea to have that degree um but you know I’ve kind of spent my my whole uh professional career my last 17 years working in various risk management roles I studied in Consulting and then soon after I worked in-house as as the head of risk for one of the Venture Capital funds only to discover that everything that we’ve done in Consulting did not make any practical sense whatsoever it was one of those you know aspirational best practice ideas that actually did not work and were never meant to work they were just somebody’s you know imagination I I think so working kind of working in in-house roles ever since uh really grounded me and made me very pragmatic about you know something that sounds good on paper but just never designed to work it’s kind of flawed by Design and so I’m trying to kind of bridge that gap between the aspirational ideas and the theories and kind of the the sad realities of making decisions because making decisions or should I say taking risks or educate taking informed risks is not is not pretty in business and for many reasons which I’m sure we’ll discuss today that’s interesting can can you can you give us some examples on on what you say oh we thought this should work but actually in real world it it doesn’t oh it’s not usually done like that yeah okay so he he’s like he’s the most fascinating uh example um in in any management practice uh which starts pretty complex and scientific sooner or later somebody commercializes it so they take the approach and they turn it into like a matrix like a three by three or two by two like everything is really um dumped down to a a matrix of some sort and so risk management has a much Matrix just like that you may have come across that in operational risk in your studies as well it’s called like Risk Matrix a heat map so that technique like there’s there’s this technique of representing risks in terms of likelihood and consequence and mapping it on this colorful map that is by far the most common approach to risk management in fact it is so common that some of the regulators and some of the governments have legislated the use of risk Matrix and in fact in health and safety in Australia for example when you do like a manual handling which assessment or a plant risk assessment or noise risk assessment you are encouraged to do that risk Matrix which actually if you do that that would be a solid defense in court if something bad happens so there’s the whole there’s this whole industry built around this risk Matrix the irony is that people who actually went ahead and tested whether this risk Matrix is the methodology whether it actually adds uh Clarity to decision making or subtracts Clarity from decision making like basically does it make does creating a risk Matrix make your decision better or worse if you did nothing at all like you’re doing risk management does it make it better does it make your decision more accurate more precise or does it make it worse because it adds additional error and so there has been about I don’t know five different studies published on that every single study concluded um with a huge difference concluded very empathetically saying that the risk Matrix is risk matrixes are worse than useless so you are actually better off not doing any risk management whatsoever than using risk Matrix because it has a lot of methodological flaws in the design both mathematical and psychological uh that just basically distorts the information so you think it’s a it’s a pretty picture that helps you prioritize risks everybody uses it it must be good yeah well so there’s there’s the cognitive bias called ad populum bias at popular popular fallacy which is like if everybody is using it it must be good well that’s that’s clearly not you know not not true you know Kim Kardashian has God knows how many million followers on Instagram doesn’t make her messages um you know solid or worthwhile and so and so this risk Matrix is a perfect example of how it’s somebody that everyone is something that everybody is using it’s the most popular technique in in the profession uh it’s so simple so basic to understand and yet it’s completely wrong it’s like it’s like a horoscope that looks nice and you get a warm feeling from reading it it has nothing to do with reality and so there’s you know that there have been a lot of research to suggest that you know the priorities that you get from a risk Matrix what you think you know some risks are important some risks are important often are completely wrong and it should be the other way around which is very dangerous for organizations it is it is when we are talking about this risk management maybe also starting from the first how would you define risk just for for every common man and woman out there yeah well it’s surprisingly this is a much more difficult question for me because I’ve kind of I’ve been so down to earth practical with the application I never really bothered with the definitions um in fact I was part of the iso committee on ISO 31000 standard which is the risk management standard so I was part of the representation representative from one of the European countries writing stuff for that standard and there was a subgroup on Tech on terminology and I said I will never be part of that group because you know risk is whatever the dictionary says it is which is basically use the English dictionary whatever it says the risk is um from from a practical point of view um and this is where I I would normally get quite mathematical which I don’t think we need to in this conversation in in our world risk is a distribution it’s basically a range from nothing happens to something catastrophic really bad happens so just you know imagine a fire fire is the risk and you get like nothing happens no fire and then you have like small fires and then you know moderate fires and then it goes to a catastrophe where everybody explore everything explodes and you know people die and a lot of damage so every risk is the range from nothing serious to something catastrophic and there’s a kind of there’s a mathematical way to represent risks as distributions and this is what we kind of keep in mind when we when we work with risks but other than that risk is whatever your dictionary says risk is interesting but this this what you just said about the really hard core things on the outer edges of this this curve this is probably what what we also usually associate with risk the the really strong things that happen and that leads us a bit back to the question of decision making and and the stuff like that I mean when we’re talking there about risk management at least to my understanding it’s really to to avoid uh the the big bad things and and really to to make decisions it’s not about the everyday things I can decide to cross the street and most probably nothing will happen maybe I’ll take a look left and right um but how do we go about uh decision making also into entrepreneurial context in the teal itself managed context and and uh do a good risk management there well so it’s it it’s it’s it’s it’s a big question and I’ll I’ll try and unpack it in kind of in two parts um first uh first I’ll talk about the kind of the risk so very briefly if risk is a distribution it really kind of have has um three components three parts there’s uh the expected losses and that’s basically what you expect to happen like you we we all realize you know life is not all shiny and peachy and positive uh something will happen for example if if you’re working in a shop shoplifting is a thing you will lose some amount of money if you if you have an equipment that you operate it will break down sooner or later you know some things are just kind of inherent in the um in life and so expected losses is something that we can actually estimate and figure out how much money do we need to allocate to maintenance to budget for kind of for bad things that are expected to happen that’s expected losses then the second component of that distribution is the unexpected losses and as you kind of kind of plausible worst case scenario this is what you basically prepare for the rainy day and um with that is used for like uh planning contingencies liquidity and cash flow like all the kind of higher level uh longer term things and then the final part of the distribution is the tail the kind of this is where all the catastrophic events are so rare but yet catastrophic and that has a completely different methodology so each of these three components has different methodologies in the in the risk management world because you can easily quantify expected losses you can quantify unexpected losses with a little bit less precision and you most of the time can’t even quantify the the worst case like the catastrophic tails you just know that it exists and you’re trying to kind of have some sort of plan b or insurance or hedge against that you don’t know when it will happen you don’t know just how huge it can potentially be but you know there’s this option that something horrible happens and you can’t be trying you try and prepare for for it um so that’s part of the question and the reason I I shared that is that we as risk professionals and the decision makers and the deal managers should be equally interested in all three components because with expected losses you can actually significantly improve your budgeting with unexpected losses you can significantly improve your liquidity management and with the tail you can significantly improve your insurances and your hedging so like or every risk every part of the risk is important it’s not just the catastrophic things that we we worry about um so that’s on the kind of on the first part and then if you want to Deep dive into that we can or I can kind of switch to the till Bridge it it would interest me very much I mean to really go also in the teal thing and see especially also with the distributed decision making and and the self-management how does this play in and I would also be interested in this entrepreneurial stuff because I I feel that we love to talk about risks because they are associated to caution and to decision apprehension and we’d rather talk about the the bins or whatever positive things we expect I feel a certain bias there yeah well that that that that’s that that’s scary that is scary um because you know the risk that the risks exist regardless of whether you want to talk about them or not I know um so so this is kind of this is the bridge and this is kind of one of the reasons why I wanted to have a conversation with you in the context of teal um the the premise behind till organizations is so wonderful is self-management a lot of responsibility um decentralized the you basically you you give the authority and the opportunity to the decision makers to make their own decisions and you trust them to take the right amount of right risks you trust them to do the right the the right thing and here’s I think where the kind of the theory meets the reality because there’s been you know two Noble prizes in economics in research for uh highlighting that humans actually horrible at understanding risks seeing risks analyzing risks taking risks and in general should never be trusted to take risks unless they’ve kind of have just proper proper guidance or education and that um we we are as a human species we’re not particularly good at taking risks some may argue life or death maybe um we’re better but then there is research to suggest to suggest that people that have been trained in life or death matters military for example they actually react much better in life or death situations and most people when they are faced with the life of deaf situation actually die because they’re not able to make the right choices in even the life or death situations and you know some people say but we’ll we’ve survived as a species you know if a God knows how many thousands of years yeah dinosaurs have lived for 150 million if I’m not mistaken so our species species what’s what’s the what’s the singular for species um we as the humans um are pretty insignificant in the scheme of things um of the planet uh so so the first the first kind of interesting deep dive for us to discuss is there’s a lot of research to suggest that if you just give the opportunity to people go out and take risks they will probably do sub-optimal at best but sometimes horrible job at doing that because taking risks seeing risks recognizing risks and acting on that information is not our strong competency people get extensive training to be able to do that to be able to recognize risks when we see them because our our general state is ignore risk it’s basically believe in fairy tales believe in um aspiration and disregard risk completely and you know sometimes it works out sometimes it doesn’t well statistically most of the time it doesn’t um because for you know for every Elon Musk you have your millions of failed uh entrepreneurs and and so on so this is the kind of this I think the first interesting cross-functional learning is that the field of risk management it’s actually called risk perception this is the whole science of uh it’s called it’s it’s about a neuroscience behavioral economics uh or neuro economics there’s this whole field called risk perception which the summary of that kind of field is that we are not particularly good at perceiving correctly perceiving and understanding and appreciating uncertainty when we’re faced with it that’s that’s an interesting thought and you I I mean many of us might have read the Daniel kahnemann were thinking fast and slow which probably also goes into into that direction and still at least I feel have I been properly educated am I properly guided around this uh that’s that’s an interesting fact where would you say uh would we need guidance or how do we best get guidance and an education about that so because this field is um all this time Candyman is already published his second book and there’s a lot of research on the topic I for example usually go to uh two authors one is as well as Israeli scientists called Dan arieli so denarielle is kind of doing exactly the same sorry I should they probably have so many distinctions in their own field so us it’s all the same so generally is doing the research kind of along the lines of uh Daniel kahnemann and his books a very pop version so like Candyman is scientific and difficult to read um generally is just like magazine Style very simple very down to earth and he’s he’s making examples in like day-to-day life you know why do we need to purchase a new smartphone which is irrational completely irrational you know why do we buy red cars why do we need new vacuum cleaners like yeah things that are so domestic that you can really relate to it and so his my favorite book by him is uh predictably irrational he’s arguing he is uh he’s arguing that um um he’s arguing that uh humans our default state is actually making irrational choices whenever we faced uh with the church so sub-optimal at best and sometimes just completely detrimental to the company objectives and um that’s that’s a good start basically generally that’s that’s kind of one um school of thought and then there’s another school of thought German Professor his name is I butchered his last name but his um he should be quite easy to find um he goes around again it’s he’s he’s making it very um kind of down to earth relevant to personal life he’s going around hospitals teaching doctors probability because whenever you get a positive response in your cancer test you actually have only about 30 chance of actually having your cancer and doctors don’t get it they see a positive result the positive test positive means bad you have it they see the positive test and they tell families and you know that they this they’ve got the disease they ruin lives and sometimes they prescribe treatment that actually has a higher statistical chance of killing somebody than the disease itself so not understanding the probabilities in medical life is very dangerous so he dedicated kind of his part of his life educating um the professionals that not relying on your intuition in making uncertain decisions and communicating uncertainty and risks to other people can actually be very dangerous but he’s also arguing for a very important cause that intuition and our kind of personal judgment and our experience is not a very good predictor for risks unless there is the there’s this this feedback mechanism and there are certain things in life for example you know don’t put all eggs in in this in the same basket that’s the basic principle of diversification and that stood the test of time and that principle is still one of the best risk management techniques on the planet and so diversifying and you’re kind of spreading your exposure uh is still to this day the one of the best possible uh risk management uh um mitigation kind of strategies yes I I I love this because I mean the the one thing you said and which is a takeaway we should probably always remind us about is don’t trust your intuition it it’s it feels so so good so logical so gut feeling is also something we we bring up but then again we have to be aware of how how wrong this could could also be and going from there from the from the personal perspective into kind of of the the structural the the overall what can we can we grain risk management in in the structures and now we again in the steel world with the shared responsibilities with the autonomy we are giving what would you what would you tell us there sure I’ll come back to that question in just a second because I want to you reminded me of another interesting study um we the first part of our conversation is all about um Ray kind of raising the red flag that the red flag is basically don’t rely on your intuition too much and be careful when you’re given responsibility to take risks um unless you use special techniques you’re probably not going to do a good job regardless of how hard you try because it’s not a human it’s not natural to humans and the the final piece of research which I found absolutely fascinating there’s this scientist called Philip tetloch and over the last 20 something years he’s been collecting forecasts so expert judgments and he collected over 80 000 experts in any field you can think of military politics economy medicine like he collected a lot of expert intuitive judgments and then he checked it against the reality you know did it happen did it not happen did it happen within the time frame what his his conclusion is this no field of study on the planet where intuition consistently outperforms simple regression models regression models is basically saying look at the past and assume that the future will look something like the past plus inflation so so he’s he he’s been studying intuition for years for decades and he his conclusion is there is no field in the world where intuition consistently outperforms the most basic kindergarten mathematical models now this is why I think artificial intelligence is going to outperform humans in like in Risky decision making by a mile um probably so one myth of risk management debunked already don’t trust your intuition what else would you give us what what to do so finally we get kind of to the to the solutions um first the the first lesson I think we can all learn is that this is not a new problem it’s not a teal problem this is the problem making decisions under uncertainty this is the problem that has been researched backwards and forwards for the last centuries in fact you know Roman Catholic Church had this position called Devil’s Advocate where whenever they try to canonize somebody they always had a role a specifically dedicated person who would build a business case against because if there’s there’s this cognitive bias called group think if everybody in the room is thinking along the same lines something’s not right because nothing is ever kind of black and white they’re always pros and cons it’s always a risk reward relationship it’s like nothing is risk-free all good no downside and so they had a person whose sole responsibility was to try and destroy the other parts arguments to question to challenge the assumptions and so all we have to do is not recreate the wheel all we have to do is just to look to different places in the world that have already figured out how to improve decision quality by solving those deficiencies in human nature and uh surprisingly I mean maybe not so surprisingly but Cia you know the Secret Service in U.S has done a wonderful job and I’m sure many other secret Services done as a wonderful job but the problem the the difference with CIA is that they actually publish some of their papers and so we know what their textbook at least their old textbooks look like and in fact one of the textbooks called the purple book a textbook on cognitive biases um is one of the best free available textbooks on cognitive biases it’s like Daniel kaneman but really really good like much much stronger and um and it’s it’s amazing because I’ve um I’ve met few guys from from their kind of you know education department and they basically say they hire the smartest people in universities and they forbid them to make intuitive decisions they give them the process for making decisions on the uncertainty they force them into a sequence of steps to overcome the cognitive biases and overcome all the other limitations to improve the quality of decision making so the solution to all of us and it really kind of it really doesn’t matter whether it’s a a single entrepreneur or a large executive in a large corporation because the sequence of steps you know some some of the steps can be mathematical but you don’t have to do it unless you’re probably in a large organization some of the steps are just as basic as it gets and um here’s my favorite one from from the CIA book it’s the the the little paper I think it’s only 14 pages that describes these techniques it’s called the primer on the CIA Prime on decision making I think or something along the lines um maybe if we can find it we can share it in the chat um but the the one of the techniques in that small document is called assumptions check and this is I think this is by far the most powerful technique in our risk management Arsenal whenever we’re making a decision it’s always based on some sort of preconceived inputs and assumptions we we we think you know we think the market will go up we think the prices will go down we think there will be more of something we think there will be less of something every decision is based on some sort of set of assumptions and just taking a pause taking a step back and reminding ourselves where did those assumptions come from and are they still valid is is an amazing exercise because one of the stories that um was shared with me when the military checked some of the assumptions that they were using for their like wartime planning they found that some of the assumptions were there from the first World War so somebody a hundred years ago made an assumption that had nothing to do with the current world nothing to do with reality and it just stayed there because it was kind of well it was always there and um so so that uh that that technique is absolutely amazing just looking at your decision saying well what are the underlying assumptions and are they current where is the information coming from how is how reliable is it is it is it possible as an internal to to I just imagine being in in a group and a well-oiled group maybe to really get to your assumptions uh how would you approach this um I I mean I think so we we just normally have a conversation about that um I mean I worked in large corporations so I was I was the department that would go in find the assumptions and then challenge kind of shake each of those assumptions and see what happens so I was the separate team that would step in and Challenge and shake each of their assumptions and think of think of risk management is like when you just about to climb a ladder you shake it to see how sturdy it is yeah and this is what risk like this is what assumptions check is all about you just shake the decision and see if it falls apart and if it doesn’t that means it’s a good decision and you should probably go ahead but usually it falls apart because you know we we’re not really we’re not really that good into um in decision quality so so um picture I mean one is the devil’s advocate as as a role and the other is this Shaker and the the assumptions check uh as a technique to improve decision making yeah yeah and and so the final kind of the final the the final uh tool so just there are two tools one is you find the assumptions you check whether they’re relevant and then what you always discover is that assumptions are not set in stone so for example if somebody says the market will go up that means there is an opportunity a a possibility that will also go down or there is a possibility that it will stay the same so there there’s always optionality what I think the Assumption check helps you to discover is that life future is not certain and in fact my favorite saying is a future is plural which means there are multiple Futures like there’s no single future no matter how hard we believe into something that there always be multiple possible Futures and we don’t know which one will eventually we think some versions are more likely some versions are less likely but yet there are you know there are multiple options for any uh any assumption and so once you discover that most of the assumptions that the decision is based on are actually not set in stone and could be high or low or big or small or you know five or seven or ten whatever whatever the assumption is that opens up to the second tool which is scenario analysis I mean we used but you don’t really have to all you have to do is say well okay this is the assumptions that my decision is based on if all goes well this is my kind of base case but what if something goes better or worse so you always have kind of a couple of you know scenarios possible scenarios and then you just check are you as an organization as an individual are you prepared for the for all of the scenarios um are you prepared are you kind of ready for the worst case scenario are you ready for the best case scenario and if you are then you know go ahead and make the decision but again what you often discover is that you’re not ready for most of the scenarios you’re only ready for the best case scenario and with minor modifications with minor adjustments with minor additional time and budget you can actually be prepared for the other other scenarios and then you can you feel kind of quite confident about making the decision I really love this also another sentence which talks if the future is plural so plan for it like like with these scenarios um respect uncertainty I think that’s the kind of that’s the word it’s it is very naive to pretend that uncertainty doesn’t exist that is so and that’s this scenario of you might also help to to combine different positions like the experience tells me there are people who feel like they are prepared to take more risk and there are people who are prepared to take maybe less risk and we usually put this under the risk appetite thing but you can’t combine this to thinking about scenarios might help you to say okay there’s no one truth it’s just the the the different views on that no absolutely we actually in business we have this concept called efficient Frontier um it’s it’s the whole kind of mathematical idea which says there are multiple for any problem there are multiple um good options you know there are there are good options and there are bad options um like this there’s never you know do this or do nothing there are always multiple options for any decision and a number of options may be good and the only difference is they kind of the risk reward balance there’s this you know yet another Matrix that we have the the risk and reward and we can actually map different options on the and figure out what’s the what’s the kind of optimal balance between risk and reward and what we find is that often for many decisions there are multiple good options multiple balanced yeah for example less reward but also less risk and more reward more risk both are good options and the only difference is the personal appetite for risk or of the individuals making the decisions and because exactly what you said in the room there are people with different risk appetites actually seeing that in front of you that this decision actually has multiple good plausible Solutions and the only difference is your appetite for risk that just kind of opens up this amazing conversation about well how does this person’s appetite for risk difference differs from this and it’s all it’s all quite kind of natural it’s not it’s not it’s not a technical conversation it’s just you know I I want more of this sooner versus I want less of this but kind of safer it’s it’s a very kind of human conversation I think so it’s kind of a qualitative aspect to that which which needs to be accepted that that there are certain difference in in perspectives um what what we do at Life Sciences with our Lifeline also stating that when when we take bigger decisions we when we go to this constant decision making which is about objections which exactly says okay we might have different ideas of what the best option is what we have to take a stand or a veto when we say this option I I am sure this option will drive us to Oblivion because then we have to say no and to all the other options we might say well I wouldn’t have done it this way but they’re plausible it’s okay let’s let’s go with it it’s possible and it it won’t distinguish us so that’s yeah that’s how how we try to do it when we are not talking about risk management you you give us very uh approaches which which work in a in an environment of self-management but we often see risk management as a role how do you look on risk management as being a role versus being ingrained in in every operations um well so the I think having a separate risk professional like myself is the necessary evil because I wish everybody was taking risks by themselves I wish risk management was ingrained in kind of my end game in organizations whenever I work where wherever I work is that the decision makers start thinking about risks and the information presented to the decision makers is already risk adjusted or risk-based in the assumptions already checked and they the decision makers are presented with scenarios and not a single version and so that that’s kind of that’s the end game to have risk management ingrained into the decision-making process um sometimes it just it just doesn’t work sometimes you need like this policeman to facilitate in the room for example I found it amazing how we would develop a methodology for like the environmental team of the compliance team and they would use it for a presentation they were doing for the board and then literally as soon as we finished they would drop the ball like the yesterday they were applying proper risk analysis to their decision making tomorrow because we are not in the room they would just drop the ball forget about it like scale back to the into kind of go back to the intuitive decision making um so risk management risk manager role in in my mind it’s kind of just somebody who needs to you know police the the process unfortunately because people are just people go back to Old Habits too soon that’s that’s yeah it’s interesting it’s easier to to well switch back as as soon as somebody’s out who’s doing differently and and this refers also to a question which we got in in the comments um traditional risk management is a rigid practice which is often misconstrued to be anti-agile and to a certain extent anti-teal how Alex how would you implement risk management in a teal organization without killing its soul but truly support entrepreneurship and fast decision making and it’s fast decision efficient decision making yeah yeah well so at some stage um I I think the realization needs to come that you know fast decision making and uh truly entrepreneurship is uh is is maybe not a thing it’s like it’s the it’s the aspiration but it’s actually kind of scientifically proven to um to produce sub-optimal results and the difference between kind of you know fast and risk based maybe like an extra couple of hours so you know I definitely I definitely don’t have in my mind a risk management methodology which takes months and for some for example for some decisions we we did take months to um to do it we ended up saving 13 million dollars in a single year so it kind of it was worth it uh but it did it did take us months months to do it but most of the time you know assumptions check is a couple of hours looking at the decision and maybe a conversation scenarios that’s maybe like an extra day of estimation yeah many I would for specifically for deal organizations I would kind of stick with the techniques that are quicker and simpler um yes you would you know lose a little bit of kind of decision quality but I think you can kind of sacrifice that because you you do it more often what I for example love about agile and teal is the frequency so if you only kind of do decisions you know once a month then you can afford to spend few days on risk risk analysis and in fact you should because the cost of missing the risks is actually much greater but if you have like weekly catch-ups and you talk about risks I mean that that means your every con every weekly conversation could be much shorter and um much more specific to like to a particular risk in in in a given stage of the process or project um so I would stick to techniques that are kind of basic at the cost of losing some of the quality which is fine and I would make the frequency of those risk conversations kind of more uh more often which which will keep them shorter and make them uh more uh more agile for example you know we talked about scenarios that’s kind of that’s this relatively simple approach to use we instead of running in two or three scenarios we run Monte Carlo simulations with hundreds thousands of scenarios that that may be an overkill for a chill organization but you know a couple of scenarios that doesn’t sound too hard yeah no it it it doesn’t and and hearing you telling it I really it’s it’s kind of sounds like making it a habit is is kind of the essence also it’s more important yes from what I hear there and and I just wonder listening to you can risk management actually be fun um well it is to me uh not not to not to my wife I had a Monte Carlo budget for my wedding um I have a live model for our life and our investment um I make her draw uh bowtie diagrams uh for like deciding where to celebrate kids birthdays um but it is fun for me it’s interesting to hear and I would have had the question and I just asked it what does the knowledge about risk management and also Behavioral Science and all the basics of it how does this impact your personal life except for the relationship to your wife obviously yeah um so well I think I think this deserves uh more medical research because I think that understanding and seeing risks and like whenever I’m in a new situation whenever I’m in a new location I I scan for risks automatically like it’s to me it’s a given I I feel a lot safer because I’m not like I’m really surprised by something I usually know there is a possibility of something happening uh so I think thinking about risk and risk management and applying risk management significantly reduces my stress but I don’t think that’s actually medically true because I I think I’m I’m quite stressed as an individual at least this is what kind of your doctors told me so I think this is this deserves this deserves an actual kind of medical study knowing risks does that actually help your your quality of life or doesn’t help quality of life I I have no idea I feel better about knowing what the risks are but I’m not sure if people around me feel better about me knowing what the risks are it might be yeah it it sounds like that
(48:50) and it really triggered some thoughts uh in me also about looking at risk risk awareness is what we’re talking about and and the other hand uh how how we handle risk not only in in our work life so to say but also in in our personal life so I took from you there are some quite easy to implement practices uh to to do risk management also in in the area where we about um being aware of risk being aware of the different kind of risks uh would you would you add something when we talk about debunking the myths of risk management what what should we take what what do we have to take from this conversation Alex I I think the key takeaway is uh um being given responsibility for risk taking is fun but it’s actually much more difficult and it has it it puts a lot of responsibility on the person and part of our responsibility I think is uh to look into the research of taking risks and the research suggests that people are not particularly good especially the intuition and our experience are not a very good advisors in in taking risks and whenever kaneman kind of said it best you know the system one and system two whenever you’re you’re facing a decision and your mind and your experience and your brain gives you a solution that’s usually system one which means it’s probably a bad idea your your initial response to any situation especially actually difficult on certain situation is at best sub-optimal at worst horrible horrible idea like your initial thinking whatever comes to mind almost immediately that’s usually system one thinking and unless it’s something benign basic domestic which you’ve been doing millions of times if it’s something new and uh uncertain then your initial response is guaranteed to be really really bad and that’s why we need to kind of we need to take time to switch on system two thinking and we literally use assumptions check and scenarios to switch on to give us time to switch on system to thinking because this is kind of this is what risk management is all about switch on system to thinking that’s that’s a very good it’s very good
(51:24) thing both both for personal life and and for the professional surrounding we are in really really doing this so we covered really really quite many interesting points this afternoon and and I thank you very much for this very in insightful conversation uh I think I have really taken something and I hope all the viewers did take something uh from that and to all of you um out there if you enjoyed this conversation please make sure to to like it to follow us on social media to get your regular dose of updates on our conversation and insights and there are some further Life Sciences events coming up so you see them here just grab your phone and scan the QR codes uh there’s a living room conversations uh with Hans Christian Marler on 10 23 steel design for scale there’s Henderson Pace from Rush on Mid of April and we have the exploit employee experience impact Forum in Amsterdam um there is a code which you could use Life Sciences code as you see it there just put in life sciences and get a discount for this one and Alex do you have any initiatives or events coming up you want to share here um so part of uh part of my kind of hobby is Raising risk awareness and I run every October um I run a risk awareness week which is a full week of people sharing kind of their stories you know Stanford professors NASA engineers and I just started planning for the 2023 version it’s not up until October so the website is kind of um the agenda is is in the process of being developed yet but the the same because it’s virtual because it’s all online you can type in 2019.2020.2021.2022 Dot and this now became this humongous library of knowledge of people sharing their risk management stories but more importantly stories about integrating risk analysis into decision making and most of it is free so you can just kind of go to all the previous risk awareness weeks and you have a look at uh you know Executives and current Executives and professors and government employees and military personnel sharing their stories on how they apply risk management in their agile decision making um but one of the one of the workshops was done by a a Canadian ex-military where he was saying making decisions at the speed of bullets or I think it was called making decisions when the bullets are flying nearby and that was quite an interesting you know case study you know we talk about uh teal and agile how do we not overburden the process well it’s um it’s even more relevant when somebody is shooting at you and you have to you have to you know Run for Cover and yet you have to make decisions under uncertainty um by the way you know military is a fascinating case study because they teach you like they train your system one because they know once the bullets start flying your system two will just switch off too much stress and so they literally train you to make better decisions because otherwise you would just die almost instantaneously but where we are back to the topic of habits I mean the more often you you do it the better you you are probably at it it was so enlightening to to talk about this and I knew that when talking about risk management this this could be fun and Alex you you proved it so I thank you really very much for joining us today for this conversation and to all our viewers thank you for joining us and I wish you a super beautiful day out there and enjoy and take care of your risks thank you bye bye [Music]
