Omigod, Omicron: Is COVID a risk management catastrophe?

I recently saw an article by ex-politician Pru Goward, which talked about the reactions to COVID as a failure of the risk-management profession.

Many will argue back and forth about whether the response to COVID has been fast enough, well-managed enough and otherwise appropriate given the risks involved. It will only be with the benefit of hindsight that the true answers to this argument become apparent.

However, I don’t share Ms Goward’s view that risk management as a profession was the issue.?However, we can learn lessons and challenge the assumptions that lay behind the risk management response to what has been the most global and penetrating crisis for some time.

This means that by taking those lessons into account, we can improve our responses to the next crisis, whether it be health-related or otherwise. In reviewing the response to COVID, I've looked seven issues where improvement could be made to our reactions to the next crisis.?

The recent emergence of the Omicron variant of COVID suggests that these lessons have proven hard to learn!

Anxiety attitude

Perusing the daily headlines and press conferences that were a feature of life during COVID and the associated lockdowns, it seemed to me that the prevailing attitude was one of anxiety. Of, course, a certain amount of fear was only natural. We were facing a threat which was previously unknown, with possibly harmful consequences, particularly in high-risk groups. This means that the threat was one which should have been considered with respect.

However, it seems to me that any commentary that any threat should be avoided completely is one of anxiety. As those who might suffer with the condition of anxiety know, that it is difficult to make optimal decisions when under the thumb of an anxious mind. What is true for individuals is also true of us as a community. It is difficult to think through issues with the appropriate clear-mindedness when fear is the prevailing emotion.

Daily reports that exacerbated the focus on rare and unusual events, rather than overwhelmingly likely outcomes contributed to this anxiety.

A focus on zero COVID suggested to the community that the threat wasn't one to be engaged with and managed, but one that should be avoided at all costs. In future crises, we will need to have a respectful attitude to the risks involved, but one which allows us to consider both the risks and the attendant reactions with due weight to their consequences, rather than seeking to totally avoid any risk.

Risk tolerance

Effectively, the way in which the community assessed the risk of COVID was that no risk was the only risk which would be tolerated. As those who buy insurance policies know, setting your risk tolerance to zero is bound to result in very expensive ways of managing that risk. For example, consider the difference in price between an insurance policy with no deductible to that with one; the price is very different.

If a zero tolerance for risk is set, this should only be in situations where the entire risk-taking body is at threat if the risk transpires. In the situation of COVID, of course, some individuals were under threat with the onset of the disease.

However, when viewed as a whole, the existential threat to humanity (and its gene pool) was barely significant. If we set out risk tolerance to that of the entire human race, our reactions would have been very different. ?Of course, the propensity to litigate around individual outcomes challenges our ability to manage in this way, and perhaps this is an issue our community needs to examine to bring more balance to risk management debates.

Board members will know that the risk tolerance for organisations is the central question that needs to be addressed when boards manage risks, but yet the community discussion around what risk was willing to be tolerated for COVID was barely in evidence. It was almost assumed that no risk was the only level which could be tolerated. This is an area of considerable improvement for the next crisis.

Risk analysis

The way in which the discourse in the public eye went was that COVID was equally risky no matter who or what status was the recipient of the infection. Of course, the statistics bear out that there was considerably more risk as you aged.

The singular most significant risk factor of an adverse COVID outcome was, in fact, the age of the person infected. Over 75, the risks became significant, but under 75, the risks accelerated much more slowly. Analysing risk in this way would direct you to a different way of responding to them than a blanket approach, which was the solution that was adopted by way of lockdowns.

Of course, there was not zero risk to those who were younger (particularly if there were other health issues going on), but they were at much lower risk than those in those much older categories. If you don't analyse the risk in this way, it is possible that a poorly designed risk management strategy will be developed, which brings me to my next point.

The importance of the 80-20 rule

In managing most business or public policy problems, frequently the distribution of outcomes across the population is of most relevance.

An intervention which affects only 20% or 10% of the population but resolves 80% of your problems is usually one which is commonly seen in managing both business problems and business risk management opportunities.

Of course, in COVID, the issue was no different. According to the statistics published by the Australian health department, less than 10% of sufferers of the illness, being those over the age of 70, were responsible for 90% of the deaths. This is an extreme example of what is known as the Pareto principle.

Accordingly, our risk management responses in such a circumstance should be targeted at the highest-risk-exposed groups. However, only with the rollout of the vaccines to that group earlier was this made a priority, especially in the early phases.

Now, perhaps this was understandable because not much was known about the risks of COVID in its early phases. This was not the case as the disease progressed over the 18 months of the crisis. By focusing on the Pareto solutions, interventions can be designed that affect as few people as possible for the greatest results. Looking for these features of the next crisis will be important to designing more efficient interventions in managing it.

Costs v benefits

The next issue is that interventions, which the most common one was lockdowns, were not weighed proportionately against their costs. Because of the issues that have already been outlined in this article, lockdowns were an immediate public policy response in many countries to the onset of coronavirus in all of its variations. This, it is without question, was a very expensive intervention and only justified in high-risk and high-uncertainty situations.

Of course, the best practice for risk management is to weigh up the cost of the interventions with the costs of the risks faced. It was often difficult in the COVID crisis to do so, because the majority of the cost of the risks was incurred in that most difficult to estimate characteristic: that of the value of human life.

However, there are other costs as well, including those of loss of productivity, the loss of educational opportunities and the loss of the enjoyment of life that was visited upon the public by the interventions that were designed to reduce COVID related health risks.

Whilst it would be argued that the costs would be justified in all circumstances when lives are potentially at stake, this sounds seldom a good way to develop policy when it comes to risk management. This would be one of the major recommendations that I think would need to be put in place for improved risk-management outcomes.

Testing not hoping

Another point where improved outcomes could be delivered was intervention design and testing. Many people were frustrated by seemingly contradictory and pernickety rules that surrounded the lockdowns. It seemed in some cases that it was almost a matter of superstition the way that the interventions were designed. For example, one of the most annoying rules for me was the restriction to 20 people in a gym class, regardless of room size.

Given that at the same time this rule was being enforced, people were able to go to nightclubs and dance close to strangers, this rule seemed a little arbitrary, to say the least!

Perhaps an alternative would be to design a whole bunch of interventions and test them in different situations, and then test the outcomes to see if improved performance was experienced. If it was, then that policy could be rolled out more widely; if not, then the policy could be curtailed. This approach was not something that was featured in the recent public policy debates, but one that could easily benefit in future outcomes.

Dynamic risk management

Dynamic risk management is practiced in many high-risk fields. For example, in firefighting, which I do on a volunteer basis on the weekends, we consider the risks that not only exist at the time you approached the fire, but also how that fire evolves.

For example, when you are in a valley with a fire far away, your response to the risk is very different to when you're confronted with a seething, boiling fire-front. The dynamism of those responses is critical in managing the best response to those risks.

However, in the environment that we're faced with a low-frequency and high-consequence risk such as COVID outbreaks, this line of thinking seemed to break down. Accordingly, public policy was quite slow to shift to changing conditions and, also, changing geographical circumstances. This is a particular area of improvement that could be featured in subsequent crises.

Diversity really matters in a risk management crisis

Finally, and most significantly, diversity was a major challenge through this debate. Through the echo chambers of social media, it became very difficult to oppose or challenge any of the above issues.

Indeed, one of the major contrarians to the early responses to COVID, John Ioannidis, was pilloried for perspectives which, on reading his articles, were ones that were offered with a sense of reasonableness that was far from in evidence in the wider debate.

Whilst you may agree or disagree with Professor Ioannidis's views, the fact that they existed and may have challenged the prevailing orthodoxy was an item of real value and could have led to improved and less costly reactions to the crisis.

We must find ways to introduce diversity of views into our decision-making in such crises in the future. Through diversity and views on the analysis, we get a better estimate of the likely costs of such risks, and we also get better interventions through a wider consultation around the effectiveness of those interventions.

By purely adopting a single perspective into the resolution of the crisis, we failed to benefit from the diversity of views that might exist across multiple domains of thinking.

Takeaways

It's clear that our reactions to COVID were far from perfect, naturally enough. Because we were dealing with an issue with which we were all unfamiliar, this would be, to some extent, expected.

However, to fail to learn the lessons around the process that was engaged in managing this crisis would seem to me to be an opportunity we could not afford to let pass by.

Accordingly, facing into the challenges of crises with a calm and balanced attitude is essential. Understanding what risks would be intolerable is a conversation worth having that was not in evidence this time.

Understanding that risk and how it might be disproportionate across the population is clearly an item which could benefit from further examination in subsequent crises, as could weighing up both the cost and effectiveness of interventions to manage the crisis on a real-time basis.

And finally, introducing both dynamism and diversity of perspective to the processes would have considerably improved the outcomes involved.

________________________________________________________________________

Richard Stewart OAM is a Corporate Value Advisory partner with PwC. He has been with them for 35 years in Australia, Europe and the USA, doing his first valuation in 1992. He has helped his clients achieve great outcomes using his value skills in the context of major decisions, M&A, disputes and regulatory matters. His clients span both the globe and the industry spectrum. He holds a BEc, MBA, FCA, FCPA, SFFin, FAICD and is an accredited Business Valuation Specialist with CAANZ. He has written two books, Strategic Value, and Hitting Pay Dirt, and is an Adjunct Professor at UTS. The opinions in this article are his own and not necessarily PwC's.