• Julian Talbot

Dealing with nebulous risks and risk adaptation

I’d just scrambled off a long-distance bus ride in India at the typical chaotic celebration of life that is an Indian bus station. I've long since forgotten the name of the depot but it had the usual melange of crowds, colors, noise, and aromas.

The bus had made its first stop in about 4 hours, and we had three more hours to go. I was in dire need of a pit stop, so I was one of the first off the bus and quickly found what passed for toilets in an Indian bus interchange in 1982.


Despite the urgency of my need, I was back on that bus 3 minutes later and sat for another two hours with my legs locked tightly together rather than use the facilities. It wasn’t that I couldn’t find them or that they were too filthy. I'd been travelling in Asia for four months by then and had seen and used the worst of the worst that Asian toilets could offer in 1982.


No. It was something else entirely. I’d been standing in front of the relatively clean urinals at the bus station when I decided to do the formerly impossible and hold on for another two hours. So what was it that made me change my plans? I’ll put it down to the experience of travelling on the cheap in some very dodgy locations for several months. And to being prepared to change plans if the environment requires it. Even though I was only 20, I’d already spent 18 months backpacking in remote and beautiful locations, so I had a good sense of what was ‘normal’ in that part of the world.


Quite simply, I’d walked in completely fixated on using the facilities and had ignored the three men already in there. Three men in the gents aren’t exactly abnormal, but my instincts had picked up that something was wrong well before I’d noticed anyone. Fortunately, I listened to them, and despite standing mere seconds away from blissful relief, I turned around and walked straight back without a pause.


The odd part of the equation was my behaviour but what had prompted it? Well, one of the men was lingering at the doorway, keeping a lookout (obvious in hindsight) and keeping others out. There were only four of us in there at the time. One was bent over at the hand basins fixated on the tap but not washing his hands, and a third chap was at the urinals but not doing the business. If it was just one of three chaps doing something odd, that would be entirely unremarkable.


To this day I don’t know for sure but I’m convinced that the moment I was in full flow, I would have had two chaps behind me, possibly with a knife, lifting my wallet while the third kept a lookout to make sure no one was coming. A perfect setup for a robbery with little that I could have done to prevent it.


Some of the things that convinced me of this were: the look of surprise and disappointment on their faces, the fact that the two in the toilets moved towards me as if to cut me off as I walked out (I was too quick, fortunately) and the fact that none of them walked out in the few minutes I spent watching from outside.


In retrospect, I should have told a police officer in order to prevent another person from being robbed, but frankly, at the time, and being a 20-year-old backpacker, it didn’t seem like I would get much response if I told them that there were three men standing in a toilet. In any case, it wasn’t a normal response to their carefully prepared plan, and I walked out with a straining bladder but with my cash and dignity intact. The point of this story is twofold:

  1. Firstly that I changed my plan in response to a changing environments

  2. Secondly, my response was unexpected – particularly to the other three (although also to myself).

The story illustrates two of the issues at the heart of risk management. All risks are complex, multi-dimensional and changeable, but too often, we stick to our carefully determined plans with a “full speed ahead and damn the torpedoes” mindset.


Indeed, changing plans is often seen as a sign of weakness or vacillation in the business world. Sometimes it is, sometimes it isn’t. The trick is to honestly be open to new information or circumstances and be prepared to act on it.


This applies to any type of risk, whether man-made or natural, financial or physical. Equally, though, we need to consider the other side of the coin. What happens when our adversary or business counterparty changes their plans. Will we be as unable to adapt as my three adversaries at the bus station were?


The unexpected changes the risk dynamic, and even the experts often get it wrong in this regard. When the Noble prize-winning economists behind Long Term Capital Management thought they had derivatives risk fully calculated, they took on ever-larger trading positions, but even they couldn’t factor in all their counter-party risks.


When Russia devalued the rouble in 1998 and declared a moratorium on 281 billion roubles ($13.5 billion) of Treasury debt, the LTCM exposures created an international financial crisis. Ultimately, the Federal Reserve Bank of New York had to organize a bailout of $3.625 billion by the major creditors to avoid a broader collapse in the financial markets.


Similarly, we might put severe countermeasures in place to prevent a terrorist attack, but how do you factor in how the terrorists will change their plans based on your changed defenses. Equally, do we adequately consider human factors to changes in natural disasters?


If, for example, we build a public hurricane shelter in a small town, could that mean a higher death toll because nobody leaves town when a hurricane alert is declared? Risk is a complex equation with no simple answers.


So just how do you address those nebulous risks?

There is no single way to address every equation around nebulous risks. You’ll have to figure out each situation for yourself, but here are the three best ways that I know of to address such risks:

  • training

  • training

  • training

Investing in training for managers at all levels (including risk managers) is the most effective way I know to address those volatile and little-understood risks which can only be described as ambiguous or nebulous. One simple example: When I was Chief Security Officer for the Australian Trade Commission, one of our significant risks was travel safety.


We operated at 200 locations with offices in 60 nations. ‘Travel safety’ was a nice catch-all term for everything from bad food to terrorist attacks and about a million other issues in between.


As most similar organizations do, we used government travel advisories, in-house analysis, and information from various sources to provide travel safety briefings to our people. This is a good thing, but when you factor in the different issues between countries and within regions, cities and even suburbs in any given country, a ‘one-size fits all’ travel advisory is manifestly inadequate.


Our biggest challenge, however, wasn’t the country risk but working out the capabilities and experience of our staff. On one extreme, we had ex-military personnel with a pile of used passports who we could have dropped into Iraq without hesitation, while at the other extreme, we had people who’d never left their home country.


The different levels of experience meant that no two people ever faced the same risks. The sort of scams, robberies or even food poisoning problems that would have been the end of a trip for some of our people were virtually irrelevant for others. Assessing people's experience levels was something that our team did as a routine practice, but it was time-consuming and relied on their intuition, so we couldn’t really call it systematic.


One of the things that I’m most proud of from my time at Austrade was leading the exceptional team that built the travel safety training program. The purpose of that 3-day program was to provide a base level of awareness, ability and skills that any individual could apply without having a security advisor standing beside them.


And equally importantly, we needed to deliver those skills consistently and systematically to all staff who travelled. With a highly experienced team, we did indeed develop a training program, which continues to be critically acclaimed by attendees and their managers. We couldn’t manage every risk by remote control and we couldn’t prepare people for risks that we couldn’t anticipate but what we did manage was to prepare them by giving people a level of proficiency sufficient to manage most risks themselves.


 

DISCLAIMER


I still like travelling in what we politely call 'developing nations' far more than I do in the other kind of nation (the developed world). I'm not the person you want to take destination advice from if you don't like roughing it. But I've learned a lot over the years. And continue to do so.


This little article is an excerpt from a book I'm working on about the art and adventure of travel on a budget. But until my book comes out, I can recommend 'The art and adventure of traveling cheaply' by Rick Berg.


I read his book about three months before stepping off the bus at the bus station in 1982 and some of the credit for me not getting mugged that day goes to Rick Berg. So thank you, Rick. Hopefully, we will meet one day, and I can thank you in person.


Quite apart from anything else, the book is also a ripping yarn of adventurous travel. Back before booking.com or kayak.com made things all too easy. :-)



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