Risk Management is about reducing uncertainty

Risk Management is all about eliminating surprise. So to truly start to understand our risks, we need to understand uncertainty, we need to understand the unknowns. Borrowing from Andreas Schamanek’s Taxonomies of the unknown, let’s explore a few of the various taxonomies of what is not known.

Ignorance Map

I’m pretty sure Ann Kerwin first gave us the “known unknowns” and the “unknown knowns” that people still find a source of amusement about former defense secretary Rumsfield.

KnownUnknown
KnownKnown knowns Known unknowns (conscious ignorance)
Unknown Unknown knowns (tacit knowledge) Unknown unknowns (meta-ignorance)

Understanding uncertainty involves knowledge management, this is why a rigorous knowledge management program is a prerequisite for an effective quality management system.

Risk management is then a way of teasing out the unknowns and allowing us to take action:

  1. Risk assessments mostly easily focus on the ignorance that we are aware of, the ‘known unknowns’.
  2. Risk assessments can also serve as a tool of teasing out the ‘unknown knowns’. This is why participation of subject matter experts is so critical. Through the formal methodology of the risk assessment we expose and explore tacit knowledge.
  3. The third kind of ignorance is what we do now know we do not know, the ‘unknown unknowns’. We generally become aware of unknown unknowns in two ways: hindsight (deviations) and by purposefully expanding our horizons. This expansion includes diversity and also good experimentation. It is the hardest, but perhaps, most valuable part of risk management.

Taxonomy of Ignorance

Different Kinds of Unknowns, Source: Smithson (1989, p. 9); also in Bammer et al. (2008, p. 294).

Smithson distinguishes between passive and active ignorance. Passive ignorance involves areas that we are ignorant of, whereas active ignorance refers to areas we ignore. He uses the term ‘error’ for the unknowns encompassed by passive ignorance and ‘irrelevance’ for active ignorance.

Taboo is fascinating because it gets to the heart of our cultural blindness, those parts of our organization that are closed to scrutiny.

Smithson can help us understand why risk assessments are both a qualitative and a quantitative endeavor. While dealing with the unknown is the bread and butter of statistics, only a small part of the terrain of uncertainty is covered. Under Smithson’s typology, statistics primarily operates in the area of incompleteness, across probability and some kinds of vagueness. In terms of its considerations of sampling bias, statistics also has some overlap with inaccuracy. But, as the typology shows, there is much more to unknowns than the areas statistics deals with. This is another reason that subject matter experts, and different ways of thinking is a must.

Ensuring wide and appropriate expert participation gives additional perspectives on unknowns. There is also synergies by finding unrecognized similarities between disciplines and stakeholders in the unknowns they deal with and there may be great benefit from combining forces. It is important to use these concerns to enrich thinking about unknowns, rather than ruling them out as irrelevant.

Sources of Surprise

Risk management is all about managing surprise. It helps to break surprise down to three types: risk, uncertainty and ignorance.

  • Risk: The condition in which the event, process, or outcomes and the probability that each will occur is known.
    • Issue: In reality, complete knowledge of probabilities and range of potential outcomes or consequences is not usually known and is sometimes unknowable.
  • Uncertainty: The condition in which the event, process, or outcome is known (factually or hypothetically) but the probabilities that it will occur are not known.
    • Issue: The probabilities assigned, if any, are subjective, and ways to establish reliability for different subjective probability estimates are debatable.
  • Ignorance: The condition in which the event, process, or outcome is not known or expected.
    • Issue: How can we anticipate the unknown, improve the chances of anticipating, and, therefore, improve the chances of reducing vulnerability?

Effective use of the methodology moves ideally from ignorance to eventually risk.


Ignorance

DescriptionMethods of Mitigation
Closed Ignorance
Information is available but SMEs are unwilling or unable to consider that some outcomes are unknown to them.

Self-audit process, regular third-party audits, and open and transparent system with global participation
Open Ignorance
Information is available and SMEs are willing to recognize and consider that some outcomes are unknown.
Personal
Surprise occurs because an individual SME lacks knowledge or awareness of the available information.

effective teams xxplore multiple perspectives by including a diverse set of individuals and data sources for data gathering and analysis.

Transparency in process.
Communal
Surprise occurs because a group of SMEs has only similar viewpoints represented or may be less willing to consider views outside the community.
Diversity of viewpoints and sue of tools to overcome group-think and “tribal” knowledge
Novelty
Surprise occurs because the SMEs are unable to anticipate and prepare for external shocks or internal changes in preferences, technologies, and institutions.

Simulating impacts and gaming alternative outcomes of various potentials under different conditions
(Blue Team/Read Team exercises)
Complexity
Surprise occurs when inadequate forecasting tools are used to analyze the available data, resulting in inter-relationships, hidden dependencies, feedback loops, and other negative factors that lead to inadequate or incomplete understanding of the data.
System Thinking


Track changes and interrelationships of various systems to discover potential macro-effect force changes
12-Levers


Risk Management is all about understanding surprise and working to reduce uncertainty and ignorance in order to reduce, eliminate and sometimes accept. As a methodology it is effective at avoiding surrender and denial. With innovation we can even contemplate exploitation. As organizations mature, it is important to understand these concepts and utilize them.

References

  • Gigerenzer, Gerd and Garcia-Retamero, Rocio. Cassandra’s Regret: The Psychology of Not Wanting to Know (March 2017), Psychological Review, 2017, Vol. 124, No. 2, 179–196.
  • House, Robert J., Paul J. Hanges, Mansour Javidan, Peter Dorfman, and Vipin Gupta, eds. 2004. Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies. Thousand Oaks, Calif.: Sage Publications.
  • Kerwin, A. (1993). None Too Solid: Medical Ignorance. Knowledge, 15(2), 166–185.
  • Smithson, M. (1989) Ignorance and Uncertainty: Emerging Paradigms, New York: Springer-Verlag.
  • Smithson, M. (1993) “Ignorance and Science”, Knowledge: Creation, Diffusion, Utilization, 15(2) December: 133-156.

4 thoughts on “Risk Management is about reducing uncertainty

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