Blog Feature

Calculating Risk
Status Quo is the Enemy

Image of Calculating Risk

Associate Professor Thomas D. Beamish studies organizations, institutions, and economy; hazards and risks; and innovation and social change. He has written numerous articles and chapters and a book on a massive petroleum accident, “Silent Spill: the Organization of an Industrial Crisis” (MIT Press). In this blog, he discusses strategies for preventing crescive risk and disasters in teams and organizations.

How do stakeholders perceive themselves in collective situations when they confront various risks? How does this affect groups in the organizational context? Organizations and communities define risk collectively, and my work focuses on how groups and organizations come to conclusions about what’s at stake.

As a society, we understand risk primarily as the chance of harm, and from it often determine what’s at stake. The stakes can encompass anything from material issues such as how likely is this product to fail or how much money will we lose, to immaterial concerns like is this in line with what we value or what we hold as ethical. Furthermore, groups and business organizations have a unique capacity to collectively create moral, social, and cultural systems to understand how to approach issues of risk like these.

For example, it’s been repeatedly found in research that experts and engineers who work in groups can ignore technical risks because they feel that a certain problem has already been solved, or because they have collectively come to understand it—the risk— within acceptable limits. This tendency to “normalize risk” has resulted in catastrophes ranging from space shuttle crashes, nuclear crisis, to vast oil spills.

Many of these catastrophes were preventable in hindsight—so how is it that people in organizations and society ignore the warning signs of accumulating trouble right before their eyes?

The answer is what I have termed, “crescive troubles,” which literally means troubles that develop gradually and incrementally over time and build toward catastrophic proportions. Climate change is a good example of this; problems that are low intensity and occur for years as we acclimatize or accommodate ourselves to the changes. If the changes are subtle and non-immediate, we bend our understanding regarding what is acceptable and wait. Then one day, the situation becomes acute when a threshold is met, whether it’s the saturation point of CO2 or, say, the tensor strength of a bridge’s steel that gives under pressure, suddenly there’s a real, acute problem on our hands that simply cannot be ignored. Disaster strikes as if a bolt from the blue.

In retrospect, we realize that there was any number of signals that indicated a crisis would occur. Interviewing people involved in crisis situation, I found that many were aware of subtle changes that lead to the acute problem, but those changes were part of everyday life that were deemed an expected an d normal part of operations. They were simply hiding in plain sight.

Incidents of this nature defy our systems of recognition and intervention in part because of the way risk is assessed and understood in our society and within many organizations: we concentrate on and plan for acute crises like the big failures—tanker on the rocks, oil spills, airlines crashes, nuclear meltdowns, industrial accident, and the like—while ignoring the more subtle and crescive troubles that build to catastrophic proportions because they don’t seem salient yet.

Implications for Executives

This behavior manifests at every level–it could just as easily manifest for an executive dealing with a supply chain problem in India, a team of engineers developing a product in Silicon Valley, or a major oil spill off the coast of California. This issue is pervasive across the human experience as it reflects acting as a collective and the experiences that result. When understandings are institutionalized as norms, values, and beliefs they become very hard to change. Sometimes, organizational rules, cultures, or even state regulations prevent us from taking action even after a problem or set of problems are recognized, making it even harder to prevent a situation as it slowly evolves toward an eventual “meltdown.”

There are certainly a few steps leaders can take to avoid disasters caused by crescive troubles. I’ve listed:

  1. Don’t sit on your hands. If you’re a businessperson, CEO, or manager, remember that you need to remain vigilant. You can’t be so paranoid that you think something’s always going wrong, but at the same time don’t ignore the signals that something might be moving in another direction, even if it appears routine. If organizational managers aren’t vigilant about the tendency to drift toward disasters of one kind or another, then problems won’t be recognized until they become acute (and therefore expensive or worse!). And once they’re acute, they’re disastrous. Point: don’t “sit on your hands” because all seems by the book. This is exactly when things may not be as right as you believe.
  2. Develop a consistent rotation of minds. If you spend enough time with the same people, you’ll begin to build a shared understanding of shared responsibilities, routines, and organizational risks. The same thing happens in formal organizations; a group, division, or department, even a whole campus will create a “way of doing things” that works for them given their interactions over time. As minor issues arise, even those who know the business very well might see the signals, but ignore them because what is happening is considered a “normal part of the work day.” To someone who’s “always done it that way,” what might be a glaring problem to an outsider doesn’t seem odd at all.  There are tradeoffs here, but if done correctly and with foresight creating a modest flow of select people in and out of work teams can help shake up the status quo so that processes do not become stagnant and therefore opaque to participants, and you’ll get a set of fresh eyes on every project.
  3. Build a culture of open communication. Your team members are your best ally here, if you’ll only let them. Employees don’t typically ask superiors questions, they ask people horizontal to them, because they don’t want to get in trouble or appear incompetent—it’s the same with voicing concerns about problems. “Killing the messenger” is a real fear with employees in many firms. Because of this, in most organizations “bad information” stays put while good information travels up often giving upper level management a false sense of security. Create a culture that opens processes to scrutiny. A “if you see something, say something” culture that doesn’t embrace impunity or warrantless reporting but does reward scouting and early warning. That way, employees will feel comfortable speaking up when something is out of place, needs to be fixed, or simply doesn’t seem as if it is working right.
  4. Occasionally hire an outside “disruptor.” Sound disruptive? It is. This individual’s job is to show you the mistakes you might be making. They should ask: Why are things done in this particular way? Ask them to play devil’s advocate. It will make your job more difficult initially, but it will also make your products more solid, your processes more efficient, and best of all, it will make you more successful.
  5. Don’t procrastinate. If you let processes that don’t work become normalized, soon enough it will be as if they were set in stone. It’s impossible to overstate how difficult it is to unlearn behaviors. You might spend energy and other resources on them even if they seem minor, but ask yourself: how much worse would this be if it blows up and I have to devote time and resources (not to mention reputation) while doing damage control.

UC Davis Executive Education develops custom education programs for marketing leaders. For more information on building a custom program, please contact Managing Director Wendy Beecham.

Comments

Post new comment

842762198882344 » If you have a visual disability, please type the numbers two one three three into the box. Your submission will be promptly reviewed by a validation service and sent to the site administrators.
By proving you are not a machine, you help us prevent spam and keep the site secure.

Commands

Twitter Feed

Loading tweets...

Spotlight Story

Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship
Named First-ever Chief Technology Officer for Republican National Committee

Image of Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship

UPDATE: Andrew Barkett is leaving his post as senior engineer at Facebook to bring his decade of experience in Silicon Valley to become the first-ever chief technology officer for the Republican National Committee.The June 4 announcement has stirred a whirlwind of media coverage, including the Huffington Post and Washington Post.Bark

Spotlight Story

MBA Student Consultants Make an IMPACT
Projects Put Business Needs Front and Center

Image of MBA Student Consultants Make an IMPACT

Agilent Technologies’ Electronic Measurement Group is a $3.6 billion business that over the past decade has seen a dramatic shift in its customer base from U.S., and Western European customers to predominantly Asia-based customers. Today, the majority of the division’s revenues are generated outside of the U.S., with an increasing concentration in China.

Spotlight Story

UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%
U.S. News & World Report’s latest rankings: This marks the 19th consecutive year our MBA program has been ranked among the best in the nation.

Image of  UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%

(Davis, CA) — The UC Davis Graduate School of Management’s full-time MBA program has been ranked among the top six percent of AACSB International-accredited programs nationwide, according to U.S. News & World Report’s latest graduate business school rankings released today.

Spotlight Story

Mark Otero MBA 07 Builds Sacramento’s Coolest Company
The secret of social gaming mogul Mark Otero’s success is taking things to the extreme

Image of Mark Otero MBA 07 Builds Sacramento’s Coolest Company

The secret of Midtown Sacramento’s Facebook gaming mogul Mark Otero’s success is taking things to the extreme.