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Summary
18
AMMJ
May 2013
How do you create risk intelligence
and risk intuition?
Bruce Scheneir, a well know British
commentator on security and risk, talks
about people having a natural intuition
about risk. It may fail at times due to a
variety of cognitive biases, but for normal
risks that people regularly encounter, it
works surprisingly well: often better than we
give it credit for. viii
Let’s relate this concept to a work
environment. Co-workers often understand
the risks better than a manager does. They
know what the real risks are at work, and
that they all revolve around not getting the
job done. Those risks are real and tangible,
and employees feel them all the time.
To create high levels of risk intuition
behaviour, asset managers need to be
encouraged to show risk intelligence.
They need to be empowered to challenge
both their own and others assumptions,
to maintain a constant vigilance, & to be
mindful of the potential for harm in all
situations.
Asset managers should be
allowed to be what they
once were – trusting in their
judgement, masters of their
local universe, knowledgeable
about all factors relevant to and
affecting their assets, but with
sufficient rational and emotional
skills to judge what is significant,
and to eliminate what is not.
Conclusions
Asset management is inherently a risk based
decision making process. Risk is a key
element in every aspect of the scope or asset
management. Risk management underpins asset
management standards, and must increasingly be
demonstrated when procuring asset management
services.
Practitioners in asset management are more
inclined to consider uncertainty relating to a
course of action than perhaps many other
professionals, normally because their training
and experience biases them towards structured
approaches and avoidance of an unplanned
outcome. Risk and asset managers are
characterised by a disciplined approach to
problem identification, to assessing options and
to determining the right solution for a given set of
circumstances.
Risk and asset managers are surrounded in this
discipline by formal policy, guidelines, procedures
and standards that all reflect a rational and
conventional approach to risk management.
This formality constitutes an empirical approach,
necessary as the foundation but not completely
effective in an ever-changing workplace.
However, risk and asset management practitioners may be less
inclined to embrace formal risk management procedures if they are
overly prescriptive and can direct risk thinking to ‘slices of risk’ rather
than the whole pie. Faced with the ineffective formality of procedure,
risk and asset managers in asset intensive organisations often adopt
an unconventional approach to assessing a situation and making
a judgement of the best course of action. Armed with more highly
developed intuition and intelligence about the risks, people in these
roles are better able to deliver the value based outcomes demanded
of operators of physical assets.
Risk intuition is an essential characteristic in good asset
management. The pre-requisite skills of risk intelligence and
organisational behaviours such as collective mindfulness, should
and do contribute significantly to the effectiveness of asset
management functions.
Think about your interest in reading this paper Is it about discovering
more of the empirical approaches to risk and asset management
in your guise as a rational being, or is it about connecting to the
less tangible aspects of the practice of asset management in your
alternate guise as an emotionally intelligent being.
References
i Knights. F, ‘The limitations of scientific methods in economics’,1999
ii Knights. F., ‘Risk, uncertainty and profit’, 1965
iii Gisela Böhm and Wibecke Brun , ‘Intuition & affect in risk perception &
decision making’, Faculty of Psychology, University of Bergen,
Judgment & Decision Making, vol3 no1, Jan 2008, pp. 1-4.
iv F Funston & S Wagner, ‘Surviving and thriving in uncertainty – Creating
the risk intelligent enterprise’, John Wiley & Sons, 2010, p62
v Nassim. T., ‘The Black Swan: The impact of highly
improbable events’, Random House Publishers, 2007
vi Episteme, http://www.episteme.ca/ cblog/index.php?/
archives/54- Instinct-and- Intuition.html
vii Walter V. “Bud” Haslett, ‘Risk Management: Foundations for a
Changing Financial World, JohnWiley & Sons, Sep 2010
viii Schneier, B., ‘Risk Intuition’, The Guardian, Aug 2009, UK
Greg Williams is the Director, Risk and Capital Management,
PricewaterhouseCoopers (Australia)
greg.williams@au.pwc.com
Based on a Paper Presented at the 2012 ICOMS Conference
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