Why we still get risk wrong

by | May 25, 2021 | Risks And The Boardroom | 0 comments

A ‘government source’ is quoted in the Times (25 May 2021), trying to defend the government against accusations that it failed to prepare adequately for the pandemic:

“The reason we prepared for flu is because we have flu epidemics every year. The idea that you prioritise what’s least likely to happen is for the birds. This was a novel virus. The clue’s in the name…we didn’t know that it was asymptomatic. It’s very difficult to prepare for something that doesn’t exist.”

This comment illustrates so many of our common failures in risk management;

We tend to prepare only for things that happen regularly. It’s not difficult to think about taking an umbrella with you in Britain, but good risk management involves thinking about unusual or unexpected possibilities. We tend to underestimate how often unusual events happen anyway. There’s a big difference between rare events and absolutely inconceivable events, but we have had, in the last 15 years, two apparently inconceivable events in the 2007/8 Great Financial Crisis and the COVID pandemic.

We tend to focus on how a bad event could happen, rather on how the event itself. We should concentrate on the event itself, for example a pandemic or economic shutdown, rather than starting by worrying about what might cause it. If we had accepted that a pandemic could happen, we could have then identified what might cause it (eg a flu virus or any other sort of virus or infection) and what we would do to mitigate the consequences. Dealing with the consequences of an event is usually the same, whatever the cause.

We prioritise preparing for the most likely risk.  It’s very easy to focus on what we think is likely to happen, but risk management is about the unexpected. It rains regularly, so we keep an umbrella by the door, but it doesn’t snow very often, so we don’t keep a shovel there. But the day that we get stuck for hours in the snow will be the one that we wished we had thought through the weather risk. As for novelty viruses, how often have you had a first experience of something? And don’t you wish you had some preparation for it?

We concentrate on the risk of an event, rather than on the consequences. If you were offered a choice of two tasks: one with a 1 in 100 possibility of killing yourself and one with a 1 in 3 chance of bruising your knee, which would you choose? We need to prioritise the less likely, but the most impactful, risks.

We don’t think through the possibilities, especially the bad ones. It doesn’t seem such a leap of the imagination that a virus could be infectious without causing obvious symptoms. Basic risk management involves you thinking through unexpected possibilities, but we tend not to dwell on them, especially the bad ones. ‘Oh well, it‘ll never happen” is not great strategy. The unnamed government source is right when they plead that it is very difficult to prepare for something that doesn’t exist. But that’s exactly what risk management is.

So here are some tips for government risk management (and for all of us too);

  1. Assume that an event will happen.
  2. Then identify what could cause it and what the consequences might be.
  3. Identify how you would know that an event is occurring (eg alerting systems), and what you should do to minimise the risk of the event occurring.
  4. Identify how you would monitor the consequences happening and what you would do to minimise the damaging effects.


There is much more on how boards should cope with risk management in my new book: ‘Behind Closed Doors. The boardroom: How to get in, get on and make a difference’ released on 2 September 2021, available for pre-order now at Waterstones.