When are scenario thinking and future planning appropriate in risk management ?

Author: Manu Steens

In this article I write my own opinion, not that of any organization.

On the one hand, we have risk management.

In risk management, it is common practice to translate a risk as a product of probability and impact.  The most well-known formula for measuring a risk is:

R = P * I

R is the measure of risk, P the measure of the probability of an undesirable event occurring and I its impact on achieving the objectives of the organization. Both are considered known.

Special attention in this article is paid to the situation in which there is a high degree of uncertainty with a risk. Unlike certainty, usually mathematically defined as a number between 0 and 1, or between 0% and 100%, uncertainty is rather something we feel but on which we cannot attach a clear mathematical definition that leans back on certainty. What we do know, however, is when the uncertainty is maximum for the occurrence of an event as a result of a cause. That is if the probability is 50%. Why? Because then the occurrence of the event is a coin on its side: you really do not know which way it will fall.

On the other hand, we have the combination of the future strategies with scenario thinking.

In itself, risk management is also a bit like thinking towards the future: if the probability is high, for example 95% chance of occurrence, then there is a relative high certainty of the occurrence of the impact. It is then, from risk management and in function of the impact, that one has to define and implement a measure. This allows the impact to be optimally prevented or mitigated (in the event of a threat) or provoked to the maximum (in the event of an opportunity).

However, the reasoning I want to make here is this one where the uncertainty is maximum. There it is therefore unclear whether the event will occur, or not. So a twofold future occurs: the event happens or does not happen. With this, a game of extremes occurs, for example:

  • Will it be war or peace?
  • Will healthcare become more preventive or more curative?
  • Will sufficient measures be taken in time for the climate or will it become an unbearable climate?
  • Will there be famine or abundance?

With such uncertainties one can consider these uncertainties in their own right, where one has two futures per uncertainty, or one can  express them per two against each other (if they are sufficiently independent), obtaining quadrants that represent four futures.

In theory one can work with n uncertainties, where one then obtains 2n futures but it becomes problematic, because already from n = 3 one has 8 futures, which becomes unworkable and also because in practice it  becomes more difficult to maintain the independence of these uncertainties.  And that is necessary to foresee extremely different futures.

For each of these futures, instead of directly defining measures, one can then start thinking about scenarios. This is a strategic choice, where one defines how one will act in a certain direction depending on which future becomes true. This instead of putting a single project or action in the pipeline because one has a strong expectation regarding whether (probability rather high) or not (probability rather low) the event with a specific impact will occur.

In order to be able to make the right choice, it is necessary to explore the evolution of the circumstances of the organization.  In other words, lowering the uncertainty about the knowledge of the future. To do that, one has a number of things that one can do.

  • The very first thing to do is to dare to question the assumptions. Are the assumptions that were made the good ones.
  • One determines the extreme futures, the scenarios, and whether one is ready for it, or whether, in contrast, one still has work to do. Usually it is the latter. To this end, one looks at which strategic option is most useful in which possible future. These options involve developing possible future projects or actions, and thoroughly considering their effects with a 360° view. As far as possible, tests or exercises are carried out to estimate the possible effects.  What are the shortcomings that need to be filled in?
  • Furthermore, there is the collection of the necessary information. One will define relevant parameters – indicators – and follow their trends. One determines in advance when one will decide on the basis of which (combination of) indicators which strategic options one will roll out. This is important, because being there in time and preparing for a future can determine whether one can get a  competitive or societal advantage from it or whether one is more likely to encounter a problem.
  • When the future unfolds, one deliberately monitors it, and consciously chooses the pre-agreed options tailored to the actual nuanced future. The timing of the decision and the roll-out of action plans is then crucial.

Conclusion:

Scenario thinking and future planning are relevant within risk management. However, one should have a good idea when this is the case. A rule of thumb is: do this with priority where the probability of an event with a certain impact is average.

Usually there are multiple risks with an average probability. Then give priority to risks with a high impact. After all, these give a more extreme course of the possible futures. As much as possible, make sure that you work with uncertainties that are maximally independent of each other if you plot them against each other.

However, if the impact is very large, and opportunities exist to influence the probabilities in your favor, do not fail to do so with common risk management strategies. “Choose your battles wisely.” After all, future planning and scenario thinking are especially useful when the internal and / or external environment of the organization are substantially uncertain. The choice to work on certainty, or to try to take advantage of uncertainty, is also a strategic choice in itself. And that depends on the capabilities of the organization. The internal environment can usually be influenced. Tinkering with the external environment is usually an impossible task. That is why this technique is also important when trying  to look at risk management objectively for the organization as part of the world.

What are the possible futures of covid19 ?

Author: Manu Steens

In this article I am writing my own opinion, not that of any organization.

Some time ago I read the book “Handboek Scenarioplanning-Toekomstscenario’s als strategisch instrument voor het managen van onzekerheid” (Handbook Scenario Planning-Future Scenarios as a strategic instrument for managing uncertainty). That book has worked on me like a red rag on a bull. It inspired me to apply the first steps of the procedure discussed in the book. I think that a productive result can be presented very quickly when going through those first steps: a crisis anticipation team can be used in any crisis center. How do I see that? As the procedure prescribes, I start from 2 axes with, in my opinion, a lot of impact and a lot of uncertainty:

  1. Disease flare-up vs further disease decline
  2. The hospital system breakdown vs the hospital system stays upright

This gives rise to four scenario’ s as follows :

  1. Further decline of the disease and the hospital system stays upright : “Road to freedom”
  2. Flare-up of the disease and the hospital system stays upright: “We survive”
  3. Further reduction of the disease and the hospital system collapses: “Delayed stress and PTSD”
  4. Flare of the disease and the hospital system collapses: “Doomsday” scenario.

Figure:

Only one scenario has been extensively proclaimed and explained in the media : the “Road to freedom”.

This can be brave, but one lesson identified that can be predicted from this is that a CAT (Crisis Anticipation Team) should work on developing the other 3 scenarios.

At the moment it is known that hospitals are groaning under the load of covid19 . Other illnesses are delayed for treatment. This entails separate future aspects that are already known and recognized in previous waves, and of which we already know that we will be confronted with them:

-> Postponement of non-urgent treatment results in an overrun of the hospital system with severe non-covid19 cases after the covid19 crisis, regardless of which scenario of the 4 we face.     

-> After the “Road to freedom” scenario, the scenario “Delayed stress & PTSD” can still occur with a high probability. This with a lower uncertainty of occurrence over time. So it would be logical that society, on a global level, should take measures to this end.     

-> This situation can also occur after the “We survive” scenario.     

-> I don’t even want to talk about the “Doomsday scenario”, because then there is no workable hospital system left. Although a “Doomsday scenario” may also occur in varying degrees, as a series of slow-falling dominoes in terms of falling short for hands on the beds .     

Conclusion: a crisis anticipation team can, in my opinion, devote itself with the greatest efficiency and effectiveness to preparing for a failure of the hospital system, when the hands on the beds start to fall short, for example due to burnout and other work-related illnesses.

In order to find solutions, we have to look thoroughly on the labor market for who can do what. A relaxation in job provision to migrants could possibly help? Those of them with medical experience may be able to contribute to the solutions. Or people who are still studying can, as under part of an internship, deal with the more simple tasks of some professionals who then receive the task of “hands on the bed in ICU.”

I hope I’m wrong. Either way, it will never be easy.

Ultimately, if citizens really want to opt for the “Road to freedom” scenario, they will have to exercise a lot of discipline themselves. Because the virus does not adhere to any rules.

Covid19 and Cognitive Dissonance.

Author: Manu Steens

In this article I am writing my personal opinion, not that of any organization

Currently I am to delve into how people can spot opportunities. This has in common with having mission that one must have fantasy, creativity and imagination. This is needed in order to arrive at an alternative for merely dealing with threats within risk management. The advantage of opportunity management is that one already has a more developed leg within risk management on which one can rely, namely that same threat management. But one needs fantasy. And that is where things sometimes falter to be creative. In what way?

An important, well-known psychological obstacle is cognitive dissonance.

So with that I start with a difficult term from psychology, which can destroy both opportunities and mission by preventing them.

“What is cognitive dissonance and give a good example” you will ask.

Cognitive dissonance was introduced by the psychologist Leon Festinger in 1957. The term is used to describe the discomfort we feel when our beliefs are questioned by conflicting information. Because most people are driven by the desire to stay psychologically consistent. In order to achieve this, one will ignore, forget, not want to hear or know or even reason away any contradiction to one’s own truths . So one does not want to question one’s own “values”. These “values” are sometimes also called “frames” and are personal.

You can also find a word of explanation here: https://en.wikipedia.org/wiki/Cognitive_dissonance .

A strong example that made headlines is Alan Greenspan’s unshakable belief in market self-regulation, which saw the biggest housing crisis to trigger the worst global crisis since the Great Depression. The situation clamored for government oversight of credit institutions so that the banks would not lend money to unsuitable borrowers. Greenspan declined this, trusting that the market would filter out bad credit risks. It became a real estate bubble. Because of the cognitive dissonance of a man in a powerful position. He ignored all warnings. It wasn’t until October 23 that he acknowledged that he had made a mistake in relying on self-regulation of the markets. Those interested will find more here: https://en.wikipedia.org/wiki/Subprime_mortgage_crisis

What about Covid19 then ? An article about a report by the Secretary-General of the United Nations was published on September 20, 2019. The title block lettered : “The World Knows an Apocalyptic Pandemic Is Coming But nobody is interested in doing anything about it.” ( https://foreignpolicy.com/2019/09/20/the-world-knows-an-apocalyptic-pandemic-is-coming/ )

So there was this institution, the United Nations, that has to provide the world some protection, and it tried warn the world that a pandemic was at the door. Yet, after the facts, politicians around the world shouted they couldn’t know. There may have been some form of massive cognitive dissonance here, with all its consequences. Apparently a man can turn the world into crisis, but an organization of people who can see beyond their own truths are incapable of saving the world.

In addition, the question can always be asked what we could have done if massive credence had been attached to the report of the United Nations. Because actually, they did not know where it (the pandemic) would come from. They did not know that.

In the meantime, we hope that we can learn from Covid19, and we certainly have: there have been a number of strong examples. Vaccines have never been on the market so quickly, never before has a vaccination program on such a scale been rolled out so quickly, with growing pains though. But they do it anyway.

In the meantime, the researchers are of course not sitting still with the development of other vaccines for other diseases. One of these that is now very promising is one for malaria. To this end, there is an enormous lesson learned from Covid19: if we, the people, want it, we can vaccinate the entire world. This means that it is an opportunity from the lessons learned from covid19 to apply the vaccination experience on a large scale to this terrible disease. A plea on this issue can be found here: https://theconversation-com.cdn.ampproject.org/c/s/theconversation.com/amp/new-malaria-vaccine-proves-highly-effective-and-covid-shows -how-quickly-it-could-be-deployed-159585 

The question is whether an identified lesson here will also become a lesson learned for our world leaders, or whether they would react cognitively dissonant.

In the latter case, however, I have a question. People are allowed to be very committed to their jobs in high positions. However, this implies that these people have great responsibilities that their job entails. Do they then have the psychological right not to consider perspectives if they are inconsistent with their deeply held beliefs, whatever they are? Do they have the right to refuse? Not to consider? To reason away? In other words, are they entitled to cognitive dissonance? Or should they arm themselves against it? And do they have a duty to do so?

Can citizens around the world hope that the dramatic errors of judgment of Covid 19 will give rise to something beautiful, namely more research on vaccines and on logistics to bring the right vaccine to the right target groups? If not, we will again pay an expensive price for an inflexible attitude. World leaders must therefore (dare) to break through their frames.

So my advice here is: “break through the barriers of your frames, have imagination, create a mission ! Learn to recognize the opportunities that present themselves and take advantage of them. Help each other in this! Step out of the reign of the ‘yesterday till now’-activities and look out for possible futures, including those within seven generations.”

To be able to do that, a good risk culture is needed at the top of the world. This means that every employee within every organization (hence from bottom-up) must be open at his / her level to recognizing and tackling not only threats, but also using opportunities. You do not do that by declaring a story of risk management ex cathedra to the world. Maybe one can do that by realizing a cultural change in the world, perhaps first at the level of the high positions, whereby people not only have an eye for the negative, but rather for the positive. A mission is necessary for this. And maybe our generation will see the result, maybe only the next generation will see the result. But let’s try. After all, we don’t really have another option.