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Risk intelligence – it’s what divided by what?

With the release of the World Economic Forum’s latest report on risks to business, risk – and the opportunity to think creatively about my workshop on the 16th of March – are very much top of mind.

David Apgar is one of my risk heroes. In his book “Risk Intelligence – learning to manage what we don’t know”, he identifies risk management as a core strategic discipline that every executive must master.

He sets out a very clear model for managing risks by categorizing them as knowable, and therefore learnable; and unknowable, hence difficult to prepare for.

And as I started writing this, I thought some more about the term “quotient”, now bandied about as the second letter in a series of intelligences expanding upon the old IQ “Intelligence Quotient”; EQ, CQ, SQ and RQ – or the Emotional, Curiosity, Spiritual and Risk Intelligences – along with many more.

Going waaaay back into my early schooling, I remember the quotient being the result of a long division sum (never my strong point). Therefore, to derive the Intelligence Quotient, or IQ, we have:

(mental age as the divisor ÷ chronological age as the dividend)

This yields a quotient which when multiplied by 100 generates an IQ score, where a score of 100 indicates an intelligence performance at exactly the normal level for that age, and numbers above or below 100 indicate whether that performance is above or below the expected level for a given age.

As I remember from my also very rusty and never very good Latin, “dividend” is a gerund, or a noun-verb, meaning “the thing to be divided”. This helps me to remember what number goes where when placing the divisor and the dividend in the right places!

But the problem I ran into when thinking about risk intelligence was, “What are the two numbers – divisor and dividend – that are needed to produce the quotient part – the number that gives us RQ? What do those two numbers measure?”

Back to the wonderful David Apgar. He gives some guidance on how we can allocate a score from 1-10 for each of five aspects of risk intelligence from 0-10:

  • how often you have experiences related to the risk
  • how relevant these experiences are to what might influence the risk
  • how surprising these experiences are
  • how diverse these experiences are
  • how methodically you keep track of what you learn from them.

Apgar then suggests that we sum these numbers to get an indication of our RQ.

But here’s the thing: Apgar asserts that by tracking our experiences in this way, we can learn more about risk, and actually increase our risk intelligence. And, of course, we only need to be a little bit better than our competitors to edge ahead of them.

So actually, it’s the taking the time not only to assess and document our risk experiences but to LEARN from them as well, that increases our RQ.

This means we need to also score the “ability to learn” (another rather subjective concept) out of 10, as indicated by things like changes in management practice and reduction in incidence of knowable/learnable and controllable risks.

RQ can give us a general guide together with some discipline around what we should be observing in order to provide a  structured basis for comparing progress over time – so long as there is rigour and consistency in our scoring.

Therefore, RQ =

(the ability to learn ÷ (the 4 risk experiences + risk records))  x 100

And of course, the aim is to grow our RQ over time, initially just keeping ahead of the competition – and eventually aiming for scores that over 100 – and growing.

Now, this is where it gets really exciting! I am a great fan of Peter Senge’s work on “The Fifth Discipline – the Art and Practice of the Learning Organization.” His book of that title and the accompanying Field Guide significantly enhance productivity, the Holy Grail of business executives.

Learning about risk – and in my field, the business risks related to environment and sustainability – is a fabulous way of delivering not only a learning organization and increased productivity, but a suite of further business benefits for the firms that create the time and nurture their people along a journey to ecological and social responsibility.

Here are some questions to get you started along the journey to what your business sustainability could look like….

  • How would your organization look if it had an Einstein-scale RQ? (Einstein’s IQ is generally accepted as being 160, but some say it was anywhere from 160-190!)
  • What do you think your organization’s current RQ score is?
  • How well are you already documenting your risk experiences?
  • How receptive would your organization be to starting to document Apgar’s four aspects of risk experience?
  • On a scale of 1 (Not at all) to 10 (Comprehensively), how well does your organization formally and explicitly analyse, document and action the learnings from incidents and near misses relating to your identified – and unexpected – business risks?

Risk – it’s the cloud in which the silver lining of business opportunity waits to be unveiled!

Links

  • Liability to Viability – turning everything you thought you know about business risk upside down and inside out… this workshop, coming up in March 2016, is a must-do for companies who want to get a grip on the risks – and opportunities – that environment and sustainability present to their business
  • David Apgar, “Risk Intelligence – learning to manage what we don’t know”
  • Peter Senge, “The Fifth Discipline – the Art and Practice of the Learning Organization
  • Find out more about the World Economic Forum’s latest report on  at risks to businesshttp://bit.ly/1G8SLNM

Thanks

I am indebted to Dr Colin Meurk, Research Associate at the Christchurch offices of Landcare Research Manaaki Whenua, for his incredibly insightful comments. Colin really got me thinking and I’ve included some of his comments above. You can find out more about his work at https://naturewatch.org.nz/ and http://natureservices.landcareresearch.co.nz/

Likewise, thanks to Juliet Batten who prompted me to create the short “quiz” at the end of this blog – thank you, Juliet! You can find out more about Juliet and her work at http://www.julietbatten.co.nz.

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