Strategis
Partners
THINKING ABOUT UNTHINKABLE RISKS
Palisade Asia Pacific User Conference
29th May 2012
Level 57, MLC Centre
19-29 Martin Place
Jay Horton
www.strategispartners.com.au
Sydney NSW 2000
© Strategis Partners
T +612 9338 6886
www.strategispartners.com.au
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Stories of unthinkable risk using narrative
1.  What is narrative?
2.  Why is narrative risk analysis important?
3.  How to write risk narratives?
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A critical skill is to imagine what might happen in the future
Source: The Economist Magazine
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COUNTERFACTUALS
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SCENARIOS
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Risk isn’t always where you expect it
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How scenarios make a difference
“Scenarios deal with two worlds:
the world of facts and the world of perceptions.”
Pierre Wack
"Scenarios: the Gentle Art of Re-perceiving"
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Evolution of Narrative Man
Grunts
Draws
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Talks
Writes
Twitters
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The integrated approach to risk management
COMPUTATION
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NARRATIVE
The integrated approach to risk management
COMPUTATION
NARRATIVE
Accommodates diverse
forms of knowledge
in a transparent form
“Stretches the mind,”
producing insights by
the synthesis of ideas
Reproducible
calculations
Bounds
uncertainty
Allows explicit
sensitivity analyses
Reduces complexity,
by identifying
interdependencies
Focuses action, by
identifying the factors
most worth
understanding and
shaping
Facilitates evaluation
of potential actions,
and joins users around
shared narrative(s)
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THE GAMBLING METAPHOR
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UNCERTAINTY = RISK
Risk can be quantified and
insured, but uncertainty has
to be continuously interpreted
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In uncertain, complex and fast-moving environments, risk management
is about imagining new scenarios, experimenting and learning
REAL OPTION THINKING
Consider a variety of
future scenarios
Probe and
experiment;
monitor; fail fast
Design a range
of options / decisions
to respond
Stage initiatives and
embed real options
at each stage
Keep costs down
when uncertainty
is high
Favour actions that are
informative, and robust
to uncertainties
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Stories of unthinkable risk using narrative
1.  What is narrative?
2.  Why is narrative risk analysis important?
3.  How to write risk narratives?
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We are dealing with uncertain, complex, ambiguous threats and opportunities
DRIVERS OF INCREASING UNPREDICTABILITY
Post-Western globalisation
New competition
Cheap, abundant, mobile,
always-on interaction
Energy & resource scarcities
Climate change
Global financial instabilities
Increasing
unpredictability
Threats which challenge a
firm’s ability to sustain value
Shifting customer
needs
BANG technologies
(Bits, Atoms, Neurons & Genes)
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•  Increased “sudden-death”
hazards
Higher-order
interactive
effects
•  Shifts in the competitive
landscape
New golden opportunities
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A key issue for risk professionals: justifying the computational model
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We need narrative skills to become better communicators
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Stories of unthinkable risk using narrative
1.  What is narrative?
2.  Why is narrative risk analysis important?
3.  How to write risk narratives?
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MTR Corporation’s asset replacement program
to meet the needs of a changing Hong Kong
The focal question:
What will Hong Kong demand of public transport in ten
years time, and what will this mean for MTR’s Asset
Renewal Program?
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1. Generate as many ideas as possible
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2. Filter down down to the best ideas
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3. Cluster ideas by topic
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4. Create messages
Turn topics into vital messages
Democratic party in control in HK Growth in Tourism
Population movement to
the hinterland
Increasing government regulation Increase in oil prices
More demand for value-added
services Stability of China’s Policies
Work life is changing …
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5. Organise
Prioritise according to importance and uncertainty
IMPORTANCE
High
Low
Low
High
UNCERTAINTY
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6. Create scenario logics on most uncertain and most important variables
A
Single axis of
critical uncertainty
Nature of Economic Environment
Unfavourable
market
High confidence
Revolutionary
B
Two axes of
critical uncertainties
State of
Technology
Development
Different
Scenarios
Incremental
Unfavourable
market
High
confidence
Nature of Economic Environment
C
Three axis of
critical uncertainties
Revolutionary
State of
Technology
Development
Incremental
Unfavourable
market
Less
restrictive
More
High restrictive
confidence
Nature of
Regulatory
Environment
Nature of Economic Environment
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A time line of the future can illustrate your scenario
EXAMPLE: CLIMATE CHANGE SCENARIO
Developed countries focus
on reducing GHG emissions
Exports of high
quality products
and goods from
China grows
Protectionist measures
are taken by the Western
World with developing
nations who refuse to
regulate GHG emissions
Series of natural
disasters perceived
to be linked to
global warming
Global temperatures
forecast to rise by 2oC
by 2025 rather then
2035 back in 2006
2010
Major shifts in
public opinion
Carbon
capture tech
proven but not
as effective as
hoped
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Removal of
protectionist
measures put in
place by
developing
nations
2020
2015
Developed
countries
implement
regulations to
reduce GHG
emissions, but
developing
countries resist
India’s economy
continues to grow and
continues to utilize low
GHG emissions
technologies
Increasing levels
of recycling in
developed
countries
New technologies
emerge to reduce
GHGs
International
treaty on climate
change
Developed
country
economies begin
to pick up, but
production lags
2025
New technology
commercialised
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Three scenarios were developed with different overarching themes
City is reborn
The ‘expected’ future
City loses its vitality
2010
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2020
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The expected future is the “benchmark” scenario
The Expected Future
Aging population
More demanding customers More demand for value-added
services
Population movement beyond
the inner city
Improvement in competitors
Work life is changing
Tighter regulation
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The “challenging” Scenario sees testing times ahead
Tougher
economic
conditions
Environment
less
attractive
City loses its vitality
The
disappearing
commuter
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The “rebirth” scenario sees new opportunities ahead
Buoyant
economic
conditions
Attractive
environment
City is reborn
Attractive
business &
cultural hub
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Tear down the Berlin Wall dividing
computational and narrative
risk analysis
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With practice, “thinking the unthinkable” can become routine
Source: The New Yorker, 1965
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Strategis
Partners
Thank you
Level 57, MLC Centre
19-29 Martin Place
Sydney NSW 2000
T +612 9338 6886
www.strategispartners.com.au
© Strategis Partners
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Strategis Partners consult across Asia-Pacific
•  Scenario planning in energy, finance, manufacturing & technology
•  Strategy in agri, industrial & consumer products
•  Transportation asset renewal in Hong Kong
•  Value chain organisation in electricity
•  Executive leadership development
•  Market entry strategy in Asia
•  Strategic sourcing of ICT
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About Strategis Partners
Workshop Presenter
www.strategispartners.com
Jay Horton
Strategis Partners Pty Ltd
operates as an
independent, strategy
consultancy and is
recognized for its insight
and focus on complex
future-oriented initiatives.
The Firm’s skills and
experience lie in the use of
strategic decision analysis
and scenario planning.
Master of Economics, Australian National University
Bachelor of Engineering – Electrical, James Cook University
Fellow of the Australian Institute of Company Directors
Jay is the Founder and Managing Director of Strategis Partners, an Asia-Pacific
consultancy advising Corporations and Governments on strategy and organisation.
He has over 20 years experience advising corporations and government on strategy and
organisation, scenario planning, and decision & risk analysis. Jay has worked on
strategic and operational risk and innovation projects for companies including BHPBilliton, Mass Transit Rail Corporation of Hong Kong, Rio Tinto, Stanwell Corporation,
and Wesfarmers Limited.
He is a former Partner of PricewaterhouseCoopers, with McKinsey & Company, and
Managing Director of operations research consultancy ORG. At PwC he was leader of
PwC’s Real Options Practice in the Asia-Pacific region.
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The Firm works with clients
in energy and water utilities,
financial services,
government agencies,
logistics and retailing,
manufacturing and agribusiness, mining,
transportation and
technology companies.
Advisory Services cover:
•  Strategy and
organisation;
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Scenario planning;
Real option valuation;
Strategic decision
making processes;
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