FusionExperience

CEP 21 | Decisive actions, definitive outcomes | © FusionExperience® Ltd 2010 | fusion-experience.com | 1

Uncertainty Matters Building Early Warning Systems for Unknown Risks

FSA fines BAE £30m for

inaccurate accounting

records for activities in

Tanzania. BAE also fined

£256m by USA

department of Justice for

other false statements.

Source: FT, 5 Feb 2010

Toyota chief is accused of

being 'safety deaf‘ by US

Congress Congressional

inquiry as 39 deaths

linked to car accelerator

problems. Source: Daily

Telegraph, 25 Feb 2010

FSA fines Standard Life

£2.45m for serious

systems and controls

failures Source: FSA , 20

Jan 2010

for innovation, but this needs to be tempered with managing an increasing number

of exposures as unknown risks grow. It is for this reason, uncertainty about the

future is now firmly on the Chairman’s Office agenda within leading corporates. This

paper focuses upon taking proactive action in managing unknown risks.

Unknown risks need to be managed

Unknown risks typically fall outside conventional risk and control systems, thus

‘unexpected’ issues are more frequently being handled by the Chairman’s Office.

Unlike conventional risks, unknown risks can be wide reaching with many potential

outcomes across the organisation and ecosystem. In the extreme, these risks can

lead to systemic exposures deep within the organisation and marketplace.

Retrospective regulation such as Sarbanes Oxley removes the safely net of

ignorance as a corporate defence against ‘unforeseeable’ events. With the regulatory

threat of executive imprisonment and the increasing litigious shareholders, the

Chairman’s Office needs more advanced early warning systems of emergent

unknown risks.

Someone knows

The pressure upon the Chairman’s Office is to strengthen their checks and balances

in the way in which the business is managed by the Executive, thus turning the

spotlight on the Risk Committee, who report into the Chairman’s Office. The reality

>>

1 | 2

Uncertainty is the new norm

As the way we interact in business

becomes more complex the level of

uncertainty increases. Corporate Boards

are under intense regulatory, financial

and reputational pressure to grapple

with the double-edged sword of

uncertainty. From a positive perspective,

uncertainty creates more opportunities

FusionExperience

CEP 21 | Decisive actions, definitive outcomes | © FusionExperience® Ltd 2010 | fusion-experience.com | 2

is, that there is a high likelihood that any emergent risk was already known by someone

within the corporate ecosystem of people either inside or outside the organisation. The

challenge is that the early warning signals are often so weak or not visible to the

Chairman’s Office that issues emerge ‘unexpectedly’. Developing early warning

indicators for unknown risks requires a new approach, which will affect the whole

organisation. Effective measurement will enable the business to sense and predict

emergent patterns and take necessary actions to mitigate against these exposures.

The power of ecosystem anonymity

Employees, customers, partners, suppliers and shareholders all form part of the

organisation’s eco-system that provides a 360º catchment for gathering data intelligence.

However, it is important to provide a safe harbour in which to communicate. Anonymity

should be protected to ensure that people provide the most honest and accurate

information without the pressure of being identified. Advanced technologies offer the

ability to gather and understand large quantities of data quickly, in a scalable way whilst

protecting anonymity. This approach strengthens the governance process and

stakeholder confidence when combined with positive responsiveness.

A common currency of measurement

Using different feeling based measurements for each group targeted within an ecosystem

enables checks and balances to be inbuilt. This is achieved using a digital survey so

each person is asked to assess ‘how’ and ‘why’ they feel towards risk activities within

their area of interaction. By underpinning each survey with common structure, a universal

currency of measurement can be used.

Managing emergent patterns at the edge

Advanced interactive visualisation can be used to identify emergent patterns, allowing a

rapid way to understand the complexity of the information gathered, providing lead

indicators of perceived risks. Informed decisions can then be taken to undertake deeper

investigations into the root of the issues. Once further evidence has been captured

proactive change can be considered, planned, prioritised and implemented. Intelligence

gathered can also be used for predictions and repeatable benchmarking, providing the

basis for managing the uncertainties around risk. This repeatable process leads to a

greater sense and respond capability for managing uncertainty.

Beyond one method

Meeting the threats of unknown risks means rethinking beyond more conventional risk

methods to deal with the increasing levels of complexity and uncertainty. Building early

warning systems for unknown risks is fast becoming a must have capability.

Uncertainty matters!

FSA record fine for

individual reaches £967k;

CEO of Genel Enerji,

Turkish oil exploration,

caught dealing shares with

insider information.

Source: Daily Telegraph,

25 Feb 2010

Patients die as NHS trusts

miss patient safety alerts.

Source: BBC, 16 Feb

2010

IFA Park Row Associates

has to pay £7.8m in

customer redress.

Source: City Wire, 24 Feb

2010

Contact us

Customer Experience

Freddie McMahon

t:/ + 44 (0) 20 7 084 7500

e:/ freddie.mcmahon@

fusion-experience.com

w:/ fusion-experience.com

1 | 2

Uncertainty Matters Building Early Warning Systems for Unknown Risks