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February 22, 2009
Darwin, Lincoln and Risk Knowledge Management
The last issue of the Smithsonian magazine introduces in the title a reflection about these two great men that changed the world view of understanding our existence and our rights. The amazing thing is that both were born the same day, February 12, 1809. Their contributions have had the highest impact on our life.
The point that I bring today is to open a discussion about the analysis of our financial world evolution and the slavery that we have to many current economical paradigms. Probably we need a vision of evolution and equality in the financial market and the impact that they can have on the risk knowledge management in terms of learning from experience and the development of business solutions in times of crisis.
In one of my books, The Mathematical Management, in Spanish Gerencia Matemática, I wrote something about the need of changing the current management view and trying to use some of the principles of mathematical growth using abstraction, conceptualization, management of logic and development of new knowledge before any generalization. Generalization without foundation creates a lot of issues in management. In some cases the world appears designed on the reverse when we accept some of these generalizations as truths and we do not develop risk knowledge management skills when we know that the generalization fails, for instance:
The more people making some decisions the better the decision, the better to follow the decision_issue in the financial markets
The bigger the asset the better the profit_issue in corporate development
The higher level in an organization the better the preparation to make accurate decisions_issue in the board of directors
The better the position in an organization the better the capacity to design metrics. The issue is what is important and what is not to drive the organization
The bigger the price, the better the value_the issue of stocks value
But, all these ideas came again to my mind when I read Stefang Zweig‘s article (Austrian writer 19th and 20th century). He was thinking about the post First World War and living in Vienna. This article of real life from Reader Digest, September 1941 gave me some insights that we are on a questionable track. The example is a reflection about the value of things. One of these is money. There is a lot of value in many things that are not the most important or we provide more value to many things, the same as we inflate the value of the shares, in many cases they are not real; they are only dreams.
Mr. Zweig was a witness of the crazy inflation and loss of money value in his time. He wrote” … While the more the money lost value, the more people liked the eternal values: work, love, friendship, art, nature” and he said additionally, “Our security does not reside in what we possess; it is in what we are and what we achieve in our life.”
In summary, we might give value to something that is not the most important; in many cases we are inflating the value of things and we are creating chaos from this unreal value. Possibly, we need something that creates another evolution step in the meaning of value, the pricing and the concept of assets and equity; probably, we need to understand equality in order to align the value. In general, it seems that paradigms of our world in financial terms have to change and at the same time we will change the level of the solutions and risk management principles.
Research space
During these turbulent days the Research Space just brings you to the level of thinking of new business models, alternative solutions to reduce cost but not to use only layoffs when crises are coming. There is a huge risk that the organization will keep only what is not important, probably the executives are not the ones where the knowledge resides and they are losing the know-how, the know-what, the know-why, the know-where, etc. The question is how to reduce costs or to be more efficient creating with employees more distribution channels? Developing better supply chain structures? Developing new services? Developing new products? How to foster entrepreneurship? We need more Darwins and Lincolns the same as new business models and new paradigms for economic life. Think about some and provide me your input.
Your model and my model
As always, this section brings a comment and reflection about the model of management that I created, based on conceptualization, knowledge, risk and centred on people. The point today is that we have many different metrics, indicators and data. We need to work on the specifications of the concepts that we want to measure in our company performance evaluation. We must create he metrics relationships where they exist and develop, from these relationships, the information systems and knowledge management systems. This means first defining what your organization thinks is the most valuable to measure in order to create what the organization wants, strategy; once the metrics are defined we need to identify the net of relationships and then design systems.
Think about this evolution of performance evaluation, because probably you are more interested in measuring RAROC than ROI and probably you need to understand more the concept of strategic risks and more about the industry development first than the specific peril or hazard. We cannot continue only working in silos of knowledge when we need to understand strategic risk first because the strategy involves everyone in an organization.
Mathematical Circle
William Byers wrote a book that is called ¨How Mathematicians Think¨. He introduces the concept that with the value of logic in mathematics the creativity insights are coming from ambiguity, contradictory events and paradoxes. He says, ¨Ambiguity involves a single situation or idea that is perceived in two self-consistent but mutually incompatible frames of reference¨. This could mean, for us, in risk management that we need to understand what the more valuable assumptions are and what the values that we want to protect are.
Eduardo Rodriguez
Principal IQAnalytics
www.iqanalytics.com
eduardo.rodriguez@iqanalytics.com
Posted by edrota at February 22, 2009 12:54 PM
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