We consider ourselves a smart species; after all, we make smart decisions, we have smart phones, smart cars, smart this and smart that. How smart are we really? A full discussion on that will be a long-drawn dialog, so I will reserve it for another time. In this article I will explore that question purely through the lens of risk management; something that all species tend to do either systematically or by what we may consider as standard operating procedure (SOP). But wait! There is another SOP too, and it is not what you think. The answer is coming – so read on.
Talking about other species, Laurie Santos, a Yale University professor, has shown that capuchin monkeys make irrational choices, taking more risk when they have something to lose than when they have something to gain1 in that they were more risk averse even when it defied logic.
Humans exhibit similar behaviors when making choices. They would rather accept a sure gift of $500 than take a chance on a $1,000 gift that depended on the outcome of a coin toss, given there was no chance to lose anything even if the outcome was unfavorable. On the flip side, they would accept taking a chance based on a coin toss even if the potential loss was $0, or $1,000, rather than swallow a $500 guaranteed loss. The logic (or lack thereof) being they would be the lucky ones who could walk away with no “loss.”
In other experiments (by Dr. Daniel Kahneman and Amos Tversky), they found that framing the question has an enormous impact on how people perceive risk and the decisions they make. Given a choice that a treatment can lead to saving 200 lives out of a group of 600 versus saying it could cause 400 deaths from the same group, 72 percent chose the former, while 22 percent chose the latter2.
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Ready to re-think how smart we really are? What is it in our cognitive abilities that pre-disposes us to making wrong or bad choices and overlooking common sense? Consider the following before we attempt to dice that question:
Start with a 2x2 diagram as illustrated below, understanding each quadrant with the interpretation provided, and slot your scenario in the respective quadrant.
1: Prepared for the Known risks: Most firms that conduct risk management operate in this mode.
2: Not prepared for the Known: This is where many firms exist, in a state of blissful ignorance. Do you think there is an excuse for them to be in this predicament?
3: Prepared for the Unknown risks: Those that conduct risk management with extreme diligence will find themselves here, although there will be some surprises. By and large, such firms will fare better than all others.
4: Not prepared for the Unknown: This is one of the worst situations to be in. I call them the “sleeping” sitting ducks. Don’t worry, be happy, and soon your life will be crappy!
To hone your ability in risk management, step out of your comfort zones and face the reality, no matter how much it hurts. Try slotting each of the previous scenarios A, B and C into one of the above quadrants. I would be curious to see your results.
Let’s get back to the SOP question we started with earlier. Would it be fair for me to say that in the above examples, and in scores of others, the modus operandi was that of “seat of pants?” Otherwise, how could one explain smart species doing dumb things. I will wait for your answer on that.
All contents of this article are copyright of Rai Chowdhary and may be used by MasterControl under permission from the author.
2: Tversky, Amos; Kahneman, Daniel (1981). "The Framing of decisions and the psychology of choice". Science. 211 (4481): 453–58. Bibcode:1981Sci...211..453T.doi:10.1126/science.7455683. PMID7455683.
Rai Chowdhary, MS, CQE, CQM, CQA, Six-Sigma Black Belt, is an author, business coach and entrepreneur. He brings over 30 years of experience from life sciences, aerospace, automotive, food and chemical process industries. He has served in various roles most recently as an executive with oversight of operations, quality and manufacturing. His achievements include inventing and commercializing numerous technologies and devices including the world’s first and only radiation shielding cream, and bonding of titanium with cobalt chrome for which he won the Sulzer Innovation Award from his parent company in Switzerland.
In the recent past he played a vital role in the design and execution of animal and preclinical studies, data analysis, consulted on scale up manufacturing of polymer-ceramic composite bone void fillers, and provided strategic direction to world leading firms on Operational Excellence.
Rai has also been instrumental in getting products through the regulatory process working with the FDA, setting up the QMS, and obtaining ISO 13485 and CE registration for medical devices. He played the lead role in mapping supply chains from source to point of use while optimizing efficiency and eliminating risk factors. His team was key to launching products from conceptual design to pilot, and then to commercial scale manufacturing. His contribution to onboarding key clients such as GE, Phillips, Siemens, and other Fortune 500 companies are also noteworthy.
Some of the companies Rai has worked/served with include: Intermedics Orthopedics/Sulzermedica, Applied Materials, Dell, DuPont, BLOXR, Edwards Life Sciences, Reckitt Benckiser, Glaxo, Amedica, Lam Research, Intuitive Surgical and Abbott Spine.