July 2021 Risk Management Business Risks

52 Risks® Update (July 2021): Vale Donald Rumsfeld – 30 seconds of risk management fame, Robinhood IPO – a whopping 53 pages of risk factors, MIT Sloan – using a systems thinking approach to managing risk, and more

Vale Donald Rumsfeld – 30 Seconds of Risk Management Fame
Less than a month after Edward de Bono’s passing, the world lost another individual who made an equally significant contribution to the risk management profession, former US secretary of Defense Donald Rumsfeld.

His contribution was however limited to 30 seconds of fame in a press conference in 2002 when asked about the presence of weapons of mass destruction in Iraq.
Rumsfeld stated that “there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know”.

You can watch the famous excerpt of the press conference here

Rumsfeld, in my opinion, was fundamentally correct. Risks in the real world have many dimensions to them. I like, however, to talk about the Six Dimensions of Risk – that you can read about here on the 52 Risks® website.

Robinhood IPO – A Whopping 53 pages of Risk Factors 
Robinhood, the US share trading business, filed its IPO document with the Securities and Exchange Commission on 1 July.

By my count, there are 59 risk factors listed over the 53 pages and they summarize Robinhood’s business risks in great detail. This continues the trend in recent years of significantly more detail in the disclosures of business risks in IPOs.

Using the 52 Risks® framework, I have identified 18 strategic risks, 15 financial risks and 26 operational risks. The list is inflated by the risks associated with Robinhood’s cryptocurrency trading products and services.

If you are brave, the full document is here

MIT Sloan – Using a Systems Thinking Approach to Managing Risk
A recent article outlining the work of Retsef Levi and John Carrier at MIT Sloan, highlighted the need for a significant rethink about risk management in managing extraordinarily complex businesses. Carrier stated that despite “the sophisticated risk frameworks we’ve developed for handling large-scale projects, even in operations, we’re still suffering from the consequences of preventable incidents”.

The article goes on to highlight that “the big lesson from COVID-19 is that it’s not enough for organizations to excel at a steady state — they also must build the resilience to respond to irregular operations and conditions.”.

They advocate focusing on:
•    Identifying leading risk indicators.
•    Formulating strategies for dynamically reducing risk.
•    Mitigating potential consequences from unanticipated events.

From my perspective, the article (and accompanying webinar) are timely reminders of the need to constantly think about current and future risks in existing operations.

Businesses that continue to see risk management as a static, tick the box, policy and compliance exercise are placing themselves at risk. Risk management should definitely not be seen as ‘set and forget’. Managing operational risks requires a deep understanding of what can go wrong, effective controls, and being alert to changes to the internal and external environment.

You can read the MIT Sloan article here and watch a full webinar on the topic here on Youtube.

Peter Deans