DON’T ASK FOR A NUMBER, ASK FOR A MODEL!

You are an experienced executive and board director with a stellar track record. You have attended MBA’s, conferences, worldwide corporate meetings, and have a spacious office. And, above everything, you are a tough and confident decision maker.

 I am your assistant for uncertainty matters or, as it is more popular, risk management. I was trained to help you understand the risks of your decisions, before and after you have made them. You see, every risk is born from a web of decisions, some made recently, and others made decades ago. The persons that injected and still inject capital in the company knew that there would be risks, because that’s what brings value, and they expect us to make decisions that are risk-informed.

 My challenge is to make you realize that the risks that lie within that web of decisions are subject to randomness and interplay, sometimes in a counterintuitive way. After all, that’s why you need me, right?

 OK. That said, I can’t represent a risk by just a number. Risk is a 3-D model of the future, an attempt to capture how the future might unfold in a particular situation. Any model is better understood when it is quantitative, so that you may see and feel how a change in inputs influences the outcomes over time; however, that doesn’t mean that you can extract a specific number at a specific time and trust that it represents the risk.

 People have been making poor decisions based on this premise — that risk is the value or the score of an outcome—, without comprehending the model that produced the value or score. Even worse, people have justified horrible decisions by blaming "the number", saying that it was wrong, as if a random thing could be blamed for not being exact.

 I understand it sounds boring, but I will have to walk you through the model. That could be an overview of a simulation output and its assumptions, or a map of risk drivers and event propagation, or a correlation study of drivers and consequences, depending on the situation at hand. The model can be very simple or very complex, as can the decision.

 For risks to be managed and decisions to be made, someone has to model the uncertainty and present the results in an understandable manner, and that’s what my colleagues and I do. It is our job to create useful visualizations to inform your decision. Like I said before, this is the biggest challenge of our profession, and this assistant is up to it.

Either you can explain the decision to me and I will study risks and gains, or I will bring to you a risk that needs a decision. Both will work. You need to explain the assumptions you are working with, so that I can get prepared.

 Then, instead of a number, let me present how the risk model works within the decision, play with the random variables and the uncertain assumptions, weigh the options, and explain how the potential futures that the model suggests might influence your decision.

 And then you can do your job: choose the path that creates more value for the company.

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That’s the essence of what I try to teach at the training program I founded, Risk Leap, now entering its third season. We expect participants to adopt the mission of being an uncertainty modeler, a professional that is trained to deliver sensible risk analysis for decision making, and leap out from being a number cruncher or a risk register facilitator.

 Risk Leap´s syllabus now includes Artificial Intelligence tools and the application of Large Language Models in risk management.

 If you are a Portuguese native speaker or understand well the language, the third season will be launched on April 26, 2023. New webinars are available twice a week, until the end of September, and will be accessible for 2 years. Check on riskleap.com.

 English and Spanish will be available soon.