Presentation 1: Risk, Uncertainty and the
Public Sector Conundrum
Andrew Graham
School of Policy Studies
Queen’s University
Kingston, Canada
Workshop on Risk and
Enterprise Risk Management
Southern Africa Development
Community
April, 2014
Gaborone, Botswana
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The Salience of Risk in Political
Discourse
“ Political risk is a reality faced by every practising
political actor. Politicians judge and seek to manage
it, political advisers assess and counsel on it,
bureaucrats often bemoan it, and media
commentators make a business of reporting it.”
Catherine Althaus, Calculating Political Risk
“There can be no safety without risk”
Aron Widalvsky, 1988, Searching for Safety
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Risk Management is the Business of Government:
Well Beyond the Political
• Risk to society: natural, man-made
• Programmatic risk: the impacts of what governments do
• Regulatory risk: controlling or directing the behaviour of
others
• Management risks: more later
• Trust and confidence risks
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The Public Sector Conundrum
• As we grow our understanding of risks and uncertainty,
we create expectations abut their mitigation
• We are still in rough terrain in government about what
risk is
• We still have a wide divergence between the public and
the expert
• Addressing risk does not necessarily mean resolving it.
The concept of risk, as central as it is becoming and as sophisticated we have
become in its application, remains an elusive idea.
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Risk: what is it?
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Contested Linguistic Origins
• Arabic risq: “anything that has been given to you by God
and from which you draw profit”
• Latin risicum: challenge posed by a barrier reef to a sailor
• Spanish risco: to sail into unchartered waters
• Greek rhiza: hazards of sailing too near to the cliffs.
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“The revolutionary idea that defines the
boundary between modern times and
the past is the mastery of risk”
- Peter Bernstein, Against the Gods
Bernstein’s central argument is that the concept of risk has allowed humanity to move
from a mind-set of fate to one of choice.
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Probability
Risk
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Uncertainty
Potential for
Disruption
Threat
Risk
Crisis
Urgency
Uncertainty
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Uncertainty
Future
Orientation
What It Isn’t: Difference between risk and crisis
management
Risk Management
Systemic and ongoing
Examines range of risks
Environmentally responsive
Focus on mitigation
Risks cover a range of threat and
opportunity levels
Responses vary
Works effectively within normal
decision-making structure.
Time perspective varies.
Focused on normal business activities.
Crisis Management
Episodic
Addresses a specific threat of a very
serious nature
Event responsive
Focus on resolution and recovery
Crises are organizationally threatening
in a serious way
Responses deploy and concentrate
organization resources in short term
resolution
Creates an extraordinary structure to
enable mobilization of resources and
response.
Time perspective is short term.
Focused on abnormal business (and
potentially other) activities.
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What is a risk?
Any event or circumstance that
can prevent an organization
from achieving it goals.
“Risk is a choice rather than than a
fate.” (Bernstein, 1996)
“Risk comes from not knowing what you are
doing.” Warren Buffett
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Risk the emotion and risk the calculation
• Risk is detected in both the gut and the head – Dan
Gardner, The Science and Politics of Fear.
• Risk cannot always be stripped down to cold numbers
especially in so much of what the public sector does.
• Key to understanding how risk plays through public
policy and management.
“The policy of being too cautious is the greatest risk of all.” –
Jawalarlal Nehru
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Reputation
risks
Political
risks
Policy risks
People risks
Information
risks
Financial
risks
Delivery
and Service
Risks
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What is Risk?
Likelihood/Probability
Risk
=
A Measure of
Uncertainty
Impact
Not all risks are equal, not all risks require action – this is about
priority setting
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Typical Risk Map
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Why Do It?
• Due diligence: what did you know, when did you know it and what
did you do?
• Degree of change in the organization and/or the working
environment
• Degree of change in senior management Appetite for:
– governance (actual and optics)
– clarity of decision making
• Part of good corporate management – follows logically from sound
planning, good direction and strategic outlook
• An powerful tool in allocating resources – not just money
• A communication tool within the organization and with key
stakeholders
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Why Do It?
• Gives greater assurance in an increasingly uncertain and complex
world
• We are getting better at both identifying and measuring risk in
our environment
• Effective risk management better prepares an organizational for
an uncertain future, enables it to match its predictive capacity
to resource management and priority setting and better allocate
accountability
• Increasing demand from oversight bodies for systematic
management of risks (financial, operational and social) .
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Complacency is the enemy of risk management
When anyone asks me how I can best
describe my experience in nearly forty
years at sea, I merely say, uneventful.
Of course there have been winter
gales, and storms and fog and the like,
but in all my experience, I have never
been in any accident of any sort worth
speaking about.
I never saw a wreck and never have been
wrecked, nor was I ever in any
predicament that threatened to end in
disaster of any sort.
You see, I am not very good material for
a story.
Edward J. Smith, Captain, RMS Titanic
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The enemies of good risk management
* Seeing mistakes as just failures.
* Inability to learn and adapt.
* Fear of all risk – the catatonic leader.
* Parts that don’t work together – control and
audit outside of operations.
* Policy systems that are disconnected from their
targeted reality
* Arrogance about the organizational capacity to
manage problems and change
* Ignorance of what is going on
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What options for action are there?
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Risk Perception and the Public Discourse
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Framing a Public Policy Issue
Imagine that your country is preparing for the outbreak of an unusual Asian disease,
which is expected to kill 600 people. Two alternative programs to combat the disease
have been proposed. Assume the exact scientific estimate of the consequences of the
programs are as follows:
Program A: "200 people will be saved"
Program B: “There is a one-third probability that 600 people will be saved, and a twothirds probability that no people will be saved"
From Tversky and Kahneman 1981
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Framing a Public Policy Issue
Imagine that the your country is preparing for the outbreak of an unusual Asian
disease, which is expected to kill 600 people. Two alternative programs to combat the
disease have been proposed. Assume the exact scientific estimate of the
consequences of the programs are as follows:
Program C: “400 people will die"
Program D: “There is a one-third probability that nobody will die, and a two-thirds
probability that 600 people will die"
From Tversky and Kahneman 1981
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Framing a Public Policy Issue
Program A: "200 people will be saved"
Program B: “There is a one-third probability that 600 people will be saved, and a twothirds probability that no people will be saved"
Program C: “400 people will die"
Program D: “There is a one-third probability that nobody will die, and a two-thirds
probability that 600 people will die"
From Tversky and Kahneman 1981
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Conundrums in Public Sector Risk
Communication
• Admitting risk can be risky: why did Tokyo Electric not
put robots into nuclear power plants?
• Risk as blame avoidance or the risk of blame – where
does that fit in?
• Expert versus public: statistical versus the person
• Media focus on urgent, individual, 5 W’s  “Social
amplification of risk” – Roger Kasperson, Risk
Analysis, Vol. 8, No. 2, 1988
“The investigation of risks is at once a scientific
activity and an expression of culture.”
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Behavioral Concerns
• Various well-documented fallacies can cause inaccurate or
biased estimates of values, probabilities, etc. E.g.,
– Anchoring fallacy: bias toward an initial value
– Intentional blindness: concentrating in one area can
induce blindness to other events
– Availability fallacy: immediately-available examples
have a perhaps undue influence on our estimates
Car accidents post.2011
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People are bad risk calculators
… or often said to be bad when
1. Presented with percentages, large
numbers, or single-event probabilities
2. Experts tell them the risk
3. Presented with incertitude (versus
variability)
4. Risk is seen to be imposed
5. Risk is out of personal control
6. Rare events are observed representativeness
7. When children are at risk
8. etc.
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Characteristics of the Hazard that Influence on
Risk Perception
Acceptable Risks:
Unacceptable risks:


















Voluntary
Under your control
Clearly beneficial
Fairly distributed
Natural
Statistical
From a reliable source
Familiar
Those that affect adults
Involuntary
Controlled by others
Of little or no benefit
Unfairly distributed
Man-made
Catastrophic
From unknown sources
Unfamiliar, exotic
Those that affect children
Fischhoff, et al., 1981
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Risk Tolerance
•
•
•
•
Is zero risk tolerance possible?
What does risk averse mean, really?
Quantitative versus qualitative tolerances.
Policy and political risk calculations are a mix of gut and
evidence. Good public policy recognizes this.
• Good management of public enterprises foresees risk,
embraces error as a way of learning of emerging fault
lines or changes and adapts.
• Good risk calculation in public policy and management
foresees the unforeseeable and advises on it.
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In the end, it may not be pretty but it can work:
curb-side risk management
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Problems and Limitations of Risk Assessment
1.
The process by which policy and expertise are
mixed together in a risk assessment is poorly
understood.
2.
Its ability to provide a “Bright Line” has been
overstated by risk assessors and overused by
regulators and lawmakers.
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Problems and Limitations of Risk Assessment
3.
The data quality objective for the different goals and types of
risk assessment is poorly understood.
4.
There is often a substantial gap between the data quality
objective of the decision maker and the degree of complexity of
the assessment, with unnecessary analyses confusing and
delaying response.
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Problems and Limitations of Risk Assessment
5.
Risk assessment often obscures the substantial gap
between the data needs for good public decision
making and the paucity of available data.
6.
Risk characterization should be extended beyond a
probabilistic statement of risk to include
considerations of other endpoints.
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Problems and Limitations of Risk Assessment
7. Risk assessment is secondary
prevention rather than primary
prevention.
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Limitations of Technical Risk and
Need for a Broader View
• “The technical concept of risk is too narrow and
ambiguous to serve as the crucial yardstick for policy
making.”
• Reliance on so-called pure science, expertly supportable
probabilities and quantitative justifications simply do not
fly: risk is deeper, more ambiguous and as flawed as it is
vital.
• Risk is subject to elements of social amplification that
pass its definition and meaning through several channels
and stages to render is a public issue as fully defined, not
just a singularity.
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Source: Canadian Food Inspection Agency
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Social Amplification of Risk:
Processing Agents
Media
Engaged
Social
Organizations
Risk
Management
Agency: risk
Owner
Expert
Technical
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Opinion
Leaders
Victims and
Potential
Victims
Risk
Event/Object
Other Public
Agencies
Social Amplification of Risk: Key
Amplification Steps – Applies to Each
Agent
Filtering of signals: reducing incoming information
Decoding of signal: assigning meaning
Processing of risk signals: drawing interferences and available heuristics
Attaching social and political values to signals
Sharing and expanding signal information to relevant groups and peers
Forming views about risk tolerance, mitigations or call for action
Engaging in group or individual actions to accept, ignore, tolerate or change the risk
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The Economics of Effective Risk Management
$1 Prevention
$7 Short Term
Crisis Response
Savings
$15 Long Term
Response and
Consequences
Costs
From, Myopic Voters and Natural Disaster Policy, Andrew Healey and
Neil Malhotra, American Police Science Review, August, 2009
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