Static state under challenge
David Loseby MCIOB Chtr'd FAPM FCMI FCIPS Chtr'd FRSA MIoD FICW
CPO, Professor, Editor in Chief, Advisor & NED (Pracademic)
It is clear that the relatively stable period we have enjoyed for many decades is under threat from many factors ranging from the natural world to man made progress to a coincidence of global events from all corners of the earth. Understanding risk in the commercial world and especially in procurement, supply chain, contract management et al is in the vanguard of this.
I would assert that gone are the days of the traditional risk management table that provoked us to list all manner of known or probable risks and then rank them as a High/Medium/Low (HML) priority and similarly a HML for probability. Just like the sort appended below;
Risk
- Inherent Sources of Risk, e.g. Process, Materials, Design, Monopoly, Systems
- Potential Problems e.g. Performance / Attitudes
- Probability of Occurrence
High/ Medium/ Low
Type of Risk e.g. Cost/ Quality/ Availability
Scope of Business Impact
Time Frame
Overall Assessment
High - Priority Action
Med - Contingency Plan
Low - No action
Action Planning to Resolve
However, we have new variables that require a significantly more dynamic approach as well as a series of unknowns multiplied by an ever decreasing time frame to occurrence. Hence the traditional approach can no longer be valid. This is compounded by the ever present issue of what can professional practitioners reasonably do, especially if team resources remain static? Clearly the Black Swan (A significant event(s) that are unforeseen and of significant magnitude, that no single enterprise or indeed sector/state/country will be untouched by its reach that could reasonably be conceived) events cannot be accounted for here, although the prospect of occurrence may be more likely than decades past!
So armed with our “data lakes”, to which we have not figured out, as yet, a dynamic set of algorithms to use such richness. In order to effectively manage our risk profiles. A gap in the market to provide such insight is both clear and evident. Especially as the “human software” we are provided with can no longer be expected to manage and mitigate a portfolio of risks as the sole “controlling mind” in relation to the rapid rise in complexity and shortening time horizons. This is especially true when we consider the speed of social media that can transmit events globally (Passengers being pulled off airlines, movement of arms, political statements within minutes/hours, etc.) our response to risks as a factor of time we had originally conceived in the old model therefore, no longer fits.
New variables such as the following may need to be factors, and probably not the only ones, to feature in our risk models in the new “ecostate” that we have to manage and lead by;
? Time sensitivity
? Culture
? Behaviours
? Impact of bounded rationality (constraint through our own experiences and thinking alone)
? Speed of mitigation decision making
? Complexity factor(s) [This category may be a multiple of entries to reflect what is being evaluated and in what context].
Therefore our need for a new Platform (not what is out there today), to harness to the data lakes in a dynamic ecostate with all its complexities and time variables is a compelling business case. The development and modelling that could potentially be offered through AI to create a comprehensive Cognitive Frame (CF) that negates as much as possible of our bounded rationality, biases and unhelpful heuristics would be a start. This would enable the development of more significant risk factors (R?), so that we might express risks as follows in the future;
R? = CF x Complexity (percentage) X Time (adjusted for situation)
I can’t help feeling that using a design thinking approach will help set us on the right track, avoiding costly platforms of the past that need significant design, implementation, training, etc. type approach that is synonymous with the likes of big accounting systems (no names mentioned) will not be fit for purpose. Equally a more collaborative approach to risk management harnessing multiple enterprises in a supply chain and/or sector will provide both data and scale to remove single source data biases et al.
In short no quick or easy answers but a clear understanding that what we have today will not serve us well. The need for a step change is here and now!
This is a topic that deserves greater attention, and now, which should be on the CPO’s list of top things that keep them awake at night!?
Sometimes I wonder whether we have just been lucky so far - or were things really so simple in the past, that traditional risk management, treating every dimension as independent and separate, was adequate? :-) I agree with you that it is necessary to take a much more comprehensive view of risks, not just tying in all the relevant aspects within organizations, but also looking at the ecosystem within which the operate - their suppliers and customers, their partners, regulators, lawmakers etc. AI can be a great help in trying to make sense of this all. However, we have to be careful not to put too much faith in technology alone. Critical *human* thinking should - for the time being at least, until we get strong AI - precede our delegation of 'thinking' to AI. Big data contain rich information, even knowledge, but for wisdom, we still need intelligent humans. :-)
CPO, Professor, Editor in Chief, Advisor & NED (Pracademic)
7 年Wudu, so true and I know you have personal experience that not all procurement professionals have. Some very insightful comments and additions to my original post. Thank you David
Country Manager at DHL Worldwide Express Ethiopia PLC
7 年David, your call for organized risk management can't be more timely than now. In as much as Globalization is creating unlimited opportunities for businesses, it is creating equivalent level of threats at the same time. The fact that the borders of countries are becoming more porous, the supersonic speed of information exchange both for good and bad, the growing level of political and religious polarity (inviting terrorism), visible disparity in wealth distribution, erosion of ethics, undue pressure on the natural environment, competition for resources, etc, are growing to new levels - requires a new approach in managing the ensuing risk both in theory (at academic institutions) and in practice at the level of executives.