Thursday, October 13, 2011

How to deal with complexity...

It's a question of context. We live in a complex world - so much so, that we could describe it as a world of complexity in a universe of uncertainty. But is this a good thing?  If more uncertainty = more risk, then more uncertainty is a good thing for an optimist but a bad thing for a pessimist. What does it mean for a risk manager though?   If you ask 100 people how to assess 'quality' of life, you're likely to get more than a hundred answers. Personally though, I measure the quality of my life by how many options I have. For me, it's all about choices. Increasing my range of options is the reason that I did the Master of Risk Management. If I’d just wanted the knowledge, I could have studied any number of texts (I do anyway) but having the paper that proclaims me as a ‘Master of Risk’ bestows upon me an increasing number of options -  not least of all the ability to legitimately work in any profession, industry or continent.

Everyone has their own value system but the pursuit of ever increasing options is what drives a lot of my decision in life. It does have it's downside though - along with increasing my options comes an increase in uncertainty (after all, I have to make more decisions), ambiguity and complexity. What prompts me to reflect on this today is that I've just received my monthly edition of 'Market Talk' from my friendly Swiss banker, Philip and this month is all about 'complexity'. It’s appropriate that I reflect on that topic while consulting in Africa at a remote camp on the edge of the Rift Valley.  While I sit here with my offshore bank accounts, mortgages, spreadsheets and blogs, the local villagers are at the other end of the complexity scale. It's a scenic place but we're deep in grass-hut, subsistence farming territory. Although we have satellite internet at camp, we're a days drive from the nearest petrol station and four hours walk from the nearest hill with phone reception.. Most of the locals are pretty happy with their lot, but I sometimes see them looking at us mzungus in a way that clearly says “gee, I wish I had all their choices/vehicles/money/toys/etc".  In truth, or at least in all likelihood, most of them couldn't cope with the complexities and ambiguities that come with such things.

Driving around in a Landcruiser looks like an easy and pleasant way to get around compared to walking (and it is) but there is an invisible complexity to the tip of that 4WD iceberg. Keeping those Landcruisers running, managing a million dollar budget, bringing food and spare parts down a 1,500 km supply line, let alone all that goes into geological exploration in Africa, are below the surface of that dusty and dented Landcruiser/iceberg. Go a little further down the rabbit hole and you find a sea of complexities. Investors, stock markets, recruitment of skilled professionals, timetables and deadlines, mortgages and leases, credit cards, exams, job applications, budgets, drivers licenses and and much, much more comprise the minutiae of life that most blog readers will be familiar with.

That’s the downside of choices. If you have only one option when it comes to job, house, education, healthcare, etc then you don’t need to consider trade-offs, or make any significant decisions. Most of the locals out here don’t have to make many decisions and I can understand the appeal of that. Every so often, I like to take a complete break and just sit on a beach for two weeks. When the biggest decision of the day is picking what to eat, it's a wonderfully relaxing lifestyle - for a short while. I couldn't live like that long term, but many people do so happily. The locals here know when the wet season comes, they know how to build a hut, plant a maize crop, what to eat for breakfast (maize porridge - the same as they had for every preceding breakfast of their lives). And for the most part, it seems that they are pretty happy with that state of affairs.  Personally... I’ll take the choices, accept the complexity, make the decisions and seek to have ever more options available to choose from.

But the blog isn't just about the 'benefits of complexity' - it's called "How to deal with complexity...'

When it comes to complexity, my approach is simple. I embrace it - and surf the wave. But this book after all, is about the 'how to' of risk management (ISO 31000 style).  There are many perspectives we can use for understanding our world a little better, but when it comes to what ISO31000 would describe as 'establishing the context' I find the VUCA model a pleasantly KISS (Keep it short & simple) approach.

VUCA is an acronym used to describe, or at least reflect on and discuss, the volatility, uncertainty, complexity and ambiguity of general conditions and situations. The term VUCA came into use in the late 1990s in the military and has been subsequently adopted in strategic leadership. One way to phrase the questions would be:
  • Volatility. How volatile is our current situation? What are the nature and dynamics of change, and the change catalysts that effect our organization?  What is the nature and speed of  those change forces? Last but perhaps most important is: what aspect or element of our situation is the most volatile (ie. 
  • Uncertainty. How much predictability do we have and in particular which areas of our business have the least levels of certainty? What issues around lack of predictability, the prospects for surprise, and the sense of awareness and understanding of issues and events should we be concerned about?
  • Complexity. How complex is our context, our business model and the environment we operate in? What are the multiplex of forces, the confounding of issues and the chaos and confusion that surround our organization?
  • Ambiguity. What level of ambiguity are we facing now or in the future? In what areas are we facing them and how are they likely to effect us?  Specifically, what are the key issues around any haziness of reality, potential for misreads, or mixed meanings of conditions and cause-and-effect confusion?
Out of all these questions, the last but perhaps most important to return to is the question of Volatility. In particular, what aspect of our situation is the most volatile? This question can take some time to answer as it’s often not going to be the most obvious. A security risk assessment that I did for a large oil project turned up all the usual risks (terrorism, war, disgruntled employees, fraud, hacking, etc) as you'd expect. None of these were particularly volatile however, as we could identify indicators which could offer months or even years of advance notice.  The only risk that could realistically change overnight was environmental activism, and the main trigger for it wasn’t even a security risk. The plant had a great operating record, but experience from other similar facilities, indicated that within 24 hours of an oil spill, we were likely to have busloads of protestors at the gate, blocking traffic and creating chaos. And at the risk of stating the obvious, the easiest (but neither not the smartest, nor safest) way to shut down a hydrocarbon facility is to organise protestors to climb the fence and drape banners over the processing equipment. It’s just too dangerous to have people in a hydrocarbon facility who haven’t done the safety induction. Even the spark from a mobile phone can have catastrophic consequences and once people get into the operations area, an emergency shutdown can cost millions of dollars. Identifying this as the most volatile security risk resulted in changing a host of procedures and systems. Nothing we did as a result of this was particularly costly, and there was already a major focus on spill preventions but on the security side for example, we:

  • prepared a safety training program and leaflets for environmental protestors 
  • reviewed security procedures to automatically trigger additional staff in the event of an environmental incident
  • updated our liaison program to reach out to the leaders of more environmental groups to ensure that we had pre-existing lines of communication

Dealing with complexity is all about understanding the range of interactions and interconnectedness of seemingly unrelated things.  Looking at complexity through the VUCA lens helps us to understand the context in which organizations (or people) operate and in particular their current and future state. Used as discussion or analysis questions, they provide not only a better understanding of the current environment, but can offer insights into to how people view the conditions under which they make decisions, plan forward, manage risks, foster change and solve problems. In particular, it can help you to:
  • Anticipate the issues that shape conditions
  • Understand the consequences of issues and actions
  • Appreciate the interdependence of variables
  • Prepare for alternative realities and challenges
  • Interpret and address relevant opportunities
You could if you so chose, take these four simple questions and evolve a semi-quantitative scale to suit your particular situation.  This might help you for example, to compare the merits and uncertainties of various projects. It could be equally useful for comparing the various elements of your financial or resources portfolios and that in itself would be valuable. Overall though, the discussion that leads to those rankings is likely to be the most useful part of the process.

As Dwight D. Eisenhower said, "Plans are worthless but planning is everything."  Similarly, our limited understanding of the world is unlikely to outlast first contact with reality - but making the attempt to understand the complexities of life, gives us the best chance of achieving objectives.

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