The Risk Management Monitor blog posted Risk Management Lessons from the Olympics, the point of view of an actuary on how competition, peer pressure and human behavior drive risk taking or mitigation.
The three main points look at the scoring of events, the competitors and complex decisions made by judges, to highlight these lessons for the insurance industry:
- the scoring system drives behavior
- peer behavior can lead to excessive risk taking
- we CAN develop a scientific system for making decisions using expert judgment
Sports provide us with benchmarks, analogues and evidence to illuminate the way the human mind deals with risk and reward. Applying this understanding to the rationale for companies’ risk decisions demonstrates that some actions may not be in the companies’ best interests. They may be driven by pressures to “perform” and to “follow the pack.”Guy's background is in insurance, though I'm sure the risk decisions he discusses could be applied to any risk management process in the corporate world. From a scoring side, business processes should guide user activites, though they should also incorporate the concept that individual incentives are major drivers for many people. Getting the recognition of 'gold' can really help some people work more productively or accurately, depending on what the scoring system of the process is. If a 'time per transaction' is the only scoring metric in a process, your 'quality of execution' is likely to drop significantly. A scoring system does not need highly complex optimization to generate the type of outcomes required, just visibility and reward.
A post from the Improving It blog
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