Risk Research Institute - Risk Forum

Two Cultures of Risk
November 2000

Michael Power (Co-Director, CARR) chaired the forum and the discussion was led by George Gaskell (Professor of Social Psychology, LSE) who drew attention to the 'two cultures of risk' in risk management thinking. Drawing on the recent history of the GM foods controversy, Gaskell argued that, while risk experts, like scientists, lament public ignorance, the public are increasingly sceptical of expert assurances about risks. The impacts and implications of these two cultures are nontrivial for risk management. They are evident in the impasse over the testing of applications of gene technology, the commercial food sector seeking competitive advantage at the cost of public anxieties and substantial financial losses amongst US and European seed companies. The general implications are that more inclusive models for corporate risk assessment are necessary to secure public trust and a sustainable future for new technologies.  The practitioner viewpoint was provided by Richard Anderson of PricewaterhouseCoopers who questioned the safety of the risk maps currently being used by corporations and how the 'two culture problem' can be addressed within them. He also suggested that the traditional axes of risk maps - impact and likelihood - need to be refined to reflect issues to do with timing and risk definition. Finally, he raised the general question as to whether and how corporations can successfully manage public perceptions.  Further commentary was provided by Bridget Hutter (Co-Director of CARR) who suggested that given the diverse and culturally-relative meanings of risk in the corporate environment, companies would need to design risk management systems which were explicitly outward looking and sensitive to these differences. There followed an extensive and lively discussion and feedback from participants has been positive and supportive.

The full version of George Gaskell's discussion paper and a summary of the discussion is available:  Two Cultures of Risk|

Corporate Risk Appetite and Risk Regulation
February 2001

Robert Baldwin and Bridget Hutter led the Risk Research Institute's second risk forum in February 2001 on the links between managerial and regulatory responses to risk. They argued that managerial and regulatory responses routinely interact or overlap and also that 'risks' often comprise clusters of sub-risks. Moreover, in designing corporate and regulatory risk management systems it is helpful to break down 'risks', 'risk clusters', 'risk management' and 'risk regulation' into their elements or 'dimensions'. Doing so highlights the complex issues facing managers and regulators, including: the point of intervention for risk management and whether to pursue specific, general or incidental responses; the need to co-ordinate informational, standard-setting and enforcement activities; how to cope with dynamic and complex risk management and regulatory contexts; how to apply accountability mechanisms; and whether to target individuals, groups or organisations and how to keep their incentives consistent.  The suggested approach poses formidable challenges insofar as it exposes multiple and simultaneous problems. Identifiable 'short cuts', however, are available to managers and regulators. Many challenges can be met simultaneously - for example, actions to increase an organisation's reputational pride might also enhance the risk management of individuals.  A further 'short cut' to better risk management involves weeding out 'omissions' and 'obsessions'. 'Omissions' are instances where insufficient attention has been paid to one risk dimension (eg, a lack of information on individual risk-taking). In contrast, 'obsessions' arise when managerial or regulatory approaches are shaped by excessive attention to just one aspect of a risk, such as a firm's resilience to the impact, rather than the prevention, of a risk.  Robert Baldwin and Bridget Hutter argued that analysis should transcend divisions between 'manager' and 'regulator' or 'corporation' and 'government agency'. The multi-dimensional nature of risk control and risk appetite has to be confronted head-on, if clear thinking about the design of responses is to be advanced.

Analysing and Managing Perceptions of Strategic Risk
June 2001

Michael Barzelay led the third Risk Forum on the relationship between risk analysis and long-range strategic planning. He argued that whilst both practices are concerned with rational organisational decision-making under uncertainty, long-range strategic planning is better suited to formulating and evaluating beliefs about the future within complex organisations.

Michael Barzelay examined the organisational processes involved in such planning, using the example of 'future games'- a variant on war-gaming used to detect weaknesses in the US Air Force's then-extant strategic vision, known as 'Global Engagement'. He examined how strategic planners made process decisions given that their prime audience was the Air Force Chief of Staff and how planners ensured that the Chief of Staff 'bought into' the future games' approach. Without that 'buy-in', the Chief was unlikely to be influenced by the conclusions drawn from the game. Furthermore, Michael Barzelay examined the complex organisational process of preparing a 'futures game', which involved multiple stakeholders from inside and outside the Air Force. Planners used a process that dealt with a typical function of long-range strategic planning: reducing ignorance about the future by externalising and combining the limited knowledge possessed by multiple units that would not otherwise be linked together.  Two major points emerged from the forum. First, this particular method's strength is in mobilising knowledge about one major type of perceived risk, rather than about a range of risks. The value of the effort, however, is dependent upon which risks are chosen for analysis (a point underscored by the recent attack on the Pentagon). Second, a futures game approach is unlikely to provide a general template for corporate strategic planning, which some forum participants envisioned as an ongoing, dialogical process involving the full top echelon. Nevertheless, strategic planning is clearly an important field of risk analysis and management and more attention needs to be paid to designing processes for creating knowledge, challenging current strategies and achieving consensus.

As a result of this project Michael Barzelay and Colin Campbell published Preparing for the Future: strategic planning in the US Air Force, more information on this publication can be found at CARR Books|.