Why Quantitative Risk Assessment is Not Just the Best But the Only Option – A Conversation

Periodically, I have the pleasure of speaking one-on-one with Hans Læssøe on a variety of topics around ERM, strategic risk, and other issues and trends. As you know from my previous conversations (here, here) and posts featuring his work, Hans was formerly a practitioner at the iconic LEGO Company, but even more notably, is a pioneer and visionary in leveraging risk as a strategic advantage instead of just a negative to be mitigated or otherwise managed.

Hans and I recently got the opportunity to catch up over Zoom, and once again, it was an insightful conversation about another topic that draws much heated debate – qualitative or quantitative risk assessment.

As we get into in the following discussion, you will see Hans is firmly in the camp that a quantitative assessment approach is the only way to get unbiased insights regarding not just individual risks, but also a range of odds that a particular goal or initiative will be successful. On the other hand, qualitative approaches that simply list risks and plot points on a heat map are more than useless, he explains.

Aside from why a quantitative assessment approach is preferable, Hans and I discuss a common objection, namely how many companies mistakenly believe they don’t have any data to refer to when in fact they do.

Towards the end, we also discuss a particular risk management concept that we both feel is confusing and unnecessary.

Below is a list of major points we discuss, along with time stamps and links to those specific spots. However, I strongly encourage you to watch the entire conversation and take notes as it will be time well spent!!

  • The meaning of the name of Hans’ advisory and consulting firm, AKTUS, and why it captures the essence of his approach to risk. (0:10)
  • Quantification of risk – getting people out of their comfort zone. (0:45)
  • Our decisions are only as good as both the information going into them and the process we use to arrive at them, not the outcome. (1:40)
  • “If you can’t measure it, you can’t manage it!!” (3:45)
  • “You have more data than you think and need less data than you think.” (5:55)
  • “At what point is it good enough?” We don’t need perfection, we need good enough. (7:35)
  • “If you’re not comfortable with numbers, what are you doing in risk management?” (10:00)
  • “You’re less right than you think when you’re guessing.” (11:15)
  • The importance of group discussions instead of going it alone. (13:35)
  • What data can a company use to help guide risk assessments? It depends on the risk! (17:10)
  • If business areas are already using the data, harness it for risk(s) as well. (19:50)
  • “If you don’t measure, it’s not a risk!!” (21:10)
  • Musings on why key risk indicators are an unnecessary concept risk managers should push aside. (23:20)
  • “How big is this risk if we don’t do anything about it? Who cares?!” (25:40)
  • How do you work with people to realize they do have data for assessing risks? (27:45)
  • “The key takeaway – leverage the people you have. The more you listen to people, the smarter they become.” (29:40)
  • “We should always be sharing our knowledge with the organization. That’s the whole purpose of our role.” Parting thoughts and wrap up. (32:30)

In the interview, Hans and I discuss a couple of books that really dive more into this subject. The first one is Douglas Hubbard’s Failure of Risk Management: Why It’s Broken and How to Fix It, along with its sequel How to Measure Anything: Finding the Value of “Intangibles” in Business (workbook can be found here) and Hans’ very own Decide to Succeed: Why and How to Apply Effective Decision Risk Management.

As always, I would like to extend a huge thank you to Hans for sparing his time to speak with us about this and other challenging subjects around ERM and strategic decision-making. I look forward to catching up with him again soon!!

Does your company use quantitative assessment methods to drive decisions around risk and strategy? Have you been able to make it work or is your company not ready to utilize tools like this?

Please feel free to share your perspective and opinion(s) on this challenging and contentious subject. You can leave a comment below or join the conversation on LinkedIn.

Also, if your company is struggling to understand the best way to approach quantitative risk assessment, please don’t feel bad. Rather reach out to me via email or my online calendar and schedule a time to discuss where your company is currently at, where it wants to be, and ways we can help get you there.

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