Tuesday 26 May 2020

Assessing Risk

My two most recent professional assignments, both undertaken and completed this year, have concerned 'risk'. The first was assessing at how well the major bank for whom I do a lot of my consultancy work manages its outsourcing arrangements, and particularly the wrapper of 'risk management' (I used the inverted commas advisedly) it puts around them. The second was assessing how well the same organisation's 'Three Lines of Defence' risk model works, whether some of its participants are in fact located in the right place from an organisational design point of view, and building consensus around a new risk operating model that I designed.

Well done if you're still reading, for that all sounds pretty dry, does it not? It probably is, but every time I come into contact with anything labelled 'risk' in my professional world, it convinces me more of two things: first, that while many people can effectively identify a 'risk', they can be quite bad at quantifying it, and even less effective assessing whether it's an acceptable risk to take when compared to the likely benefits that will accrue. Second, and this is more applicable to work situations than non-work circumstances, I see a lot of people who think that the application of a process to risk assessment will in and of itself mitigate the underlying risk, rather than any resultant action. This can be very dangerous, because it persuades people that a risk has been taken care of, and therefore that they can turn off their own critical faculties.

I should state now, lest you think that I'm some kind of Health & Safety nutter, that that's absolutely not the case. But nor am I some kind of rule- and circumstance-ignoring maverick. I find both extremes irritating; the former is the local authority that might decree, for example, that hanging baskets are no longer to be allowed on a high street because of the alleged risk they pose to passers-by, while the latter is the motorway driver who ploughs on at 70 mph even in thick fog or driving snow.  In one case, the miniscule level of risk is unjustifiably used as the reason for the removal of a great pleasure giver, and in the other the benefit of arriving at one's destination a few minutes earlier does not justify the hugely increased risk of driving inappropriately.

I guess both of those examples fall into the first of the two things I see at work - that people can be bad at quantifying risk and even worse at offsetting it against benefits or downsides. My second observation is more nuanced - that putting a process round risk assessment can actually worsen a situation. This came to light on the outsourcing work I did earlier this year - to cut a long story short one of the 'supplier management' processes that those managing the outsource in question had to adhere to was to ensure that the supplier had a business continuity plan in place, so that if they were hit with an unexpected event they could still provide the bank with the contracted service. The supplier managers ticked the appropriate boxes in every case, to indicate that yes, their suppliers did indeed have such a plan, and that they'd witnessed it with their own eyes. However, a few cases has arisen where suppliers had hit problems, and their service had been interrupted. Their business continuity plan had failed. When the inevitable inquest took place, it turned out, to put it simply, that because the internal process didn't require supplier managers to assess the likely effectiveness of that continuity plan, they hadn't done; as long as they did what the process said, they weren't going to get fired or disciplined, regardless of any detrimental business outcome. Crazy process, crazy design (and crazy reward system, but that's a different issue), because it allowed them not to have to think about the real risk.

Now, I'm not going to claim that my risk assessment abilities are perfect, or even very good. I've no idea really, But I know that I at least think about these things. Let's take two contrasting examples, one of which might paint me as a risk-averse paranoid, and the other as an idiot with a death wish. The former applies when I'm using the Tube in London, which I do a lot when I'm working there, and normally at rush hour. At those times, I'm acutely aware that it would only take one unhinged person to pick on me and push me in front of an oncoming train to end my life. The number of times it actually happens each year is thankfully minimal, but happen it does. So I never stand facing the track; I stand sideways at a platform end, so I can see everyone around me. And neither do I listen to music or take calls; I want my wits about me. The risk of the negative thing occurring might be very small, but the cost of me taking what I consider to be sensible precautions is very low to zero, so why wouldn't I?

By contrast, it's inherently a lot more risky, measured in terms of probability multiplied by effect, of me riding my bicycle down mountains quickly. All it would take is one small misjudgement by me or potentially others, or one unseen patch of gravel, and I would be off and probably seriously hurt. The odds of that happening are probably much higher than being pushed under a Tube train. But I take the chance. Why? Because I estimate the rewards to be great - the adrenalin, the rush, the feeling of needing to deploy skill and experience to stay well. Some might say my approach is inconsistent, but I'd argue not - it's logical to minimise even small risks if there's no cost to doing so, and it's equally logical to incur a degree of risk if the rewards are great.

These are things I'm not sure are well understood. That's certainly how I feel when I look at some of the reactions to where we currently are with Covid-19. Let's take the education unions' objections to schools re-opening next week. I'm going to assume good faith on their part rather than any political motive (perish the thought), and take their objections at face value. But let's look at the facts - for the children certainly, and probably most teachers under 40, the chances of catching the virus at all are increasingly slim, and the chances of any infection resulting in a serious case are very small. By contrast, the cost of having kids at home not being educated, the effect on their development, education and socialisation, and the opportunity cost of their parents having to find childcare, is very great. There is clearly a strong case for schools to return; the danger to children is negligible. I would have some sympathy with the unions' position if it were more nuanced. If I were an overweight male teacher in my late 50s - and especially if I had diabetes - I'd be quite worried about going back into school, and I'd expect both the education authority and my union to be working to protect me. But I've seen no hint from either side that they're differentiating like that between teaching staff - there's either a 'risk' or there isn't in their view, which is just not true. It's an unintelligent way of looking at risk.

Similarly, and on a wider scale, it was evident right from the start of the coronavirus episode that there were groups who were massively vulnerable, and others who weren't. But instead of isolating one group and encouraging the other to continue life as usual, but with some sensible precautions, we closed down and locked up whole economies on the basis of risk assessment, driven by apparently horribly flawed modelling. I'm getting into a different subject now, so I'll stop, but I think there's going to be a strong case to look at the decisions Japan took at the outset, and the risk assessments upon which they were based. My sense is - and this is the point of this post I suppose - that they approached their risk assessments, and the subsequent political decisions in a very much better way than lots of other countries, and we should learn from that.


Sunday 17 May 2020

Prediction time - a revolution at work

I'm a management consultant in banking and financial services when I'm not being grumpy on Twitter, posting photos of the fine county of Cheshire on Facebook, or uploading exercise to Strava. My work brings me into frequent contact with Board members of a couple of the largest UK banks, including at the moment. And I think we might be seeing the stirrings of a revolution in how large, private sector organisations operate, directly as a result of CV19. I'll explain my reasoning, partly so I can look back in two years or whenever and either admit I got it hopelessly wrong, or be smug about my crystal ball...

So, coronavirus, CV19; when lockdown came the banks pretty much emptied all their head office-type buildings and functions. Employees were instantly told to work from home, and the vast, vast majority have not been back to their desks since. (Indeed, I've been told second-hand that when one of the banks that I don't work with asked if anybody wished to return to their desks at Canary Work when lockdown was eased slightly, not one of the 3,000 employees volunteered. And I know for certain that not even Board members have been into one bank's Gresham Street head office). Branch opening times have been reduced to four hours a day in many cases, and call centres have operated with skeleton staffing, again with many people being set up to work from home, where previously that simply wasn't an option for them.

In the first couple of weeks there were a few wobbles. Some people had to be given remote access to their organisation's systems, which isn't always straightforward given the security wrappers that are put round bank technologies these days. I know for certain that there was, and continues to be, major worries about the overall credit quality of the lending book, particularly for small and medium businesses. And the executives that run those businesses are particularly nervous, as they've been forced into providing Business Bounceback Loans, which although are government-backed, still fall under the auspices of the Financial Conduct Authority, who hold the senior managers of banks personally liable these days (through something called the Senior Managers Regime, introduced after 2008) for any wrongdoing - which includes lending to people or firms who are unlikely to be able to repay, which may well be the case for the Bounceback Loans. Plus, those same executives have been working even longer hours, and under even more pressure - probably unsustainably so - than BC (Before Covid).

Despite all the above, two major things have happened. First, despite the wobbles and the panics in the early days, the businesses have pretty much carried on functioning. Yes, there's been some criticism that some banks have been slow to pay out some loans, but by-and-large branches have still opened, internet banking has stayed available, phones have still been answered, and cashpoints have been full of notes. The banks have also had to absorb massively increased levels of phone traffic too, and individuals and small businesses have understandably flooded them with requests for payment holidays or other advice. Some days have been five, six times busier than the equivalent day last year, at a time when, as I've said, much activity has been transferred to 23 year olds working from their one-bed flats. It's been a truly remarkable achievement, and one that will get little attention or acclaim.

But for me, as a consultant, that's not the most significant or most interesting of the two big things that have happened. That is the fact that huge swathes of those people in the head office-type jobs have not been very busy, and that their lack of activity hasn't inhibited the running of the firm. This has been a hobby horse of mine for a while now - the fact that once an organisation reaches a certain size - I would estimate in the 5,000-10,000 employee range in the private sector - significant numbers of "non-jobs" are created. It's hard to define exactly what a "non-job" is, other that one that creates no discernible value, defined in terms of either generating revenue, managing or saving cost, or keeping the organisation safe from a legal or regulatory point of view. But after a while you tend to be able to spot a non-job holder quite easily.

These non-jobs have been created for a variety of reasons over the years. The three most popular in banking have been a) the 'spans of control' approach, which has set ratios for the number of people each manager has to have as direct reports, leading to jobs being created just to meet the ratio and thereby help secure their grade; b) a huge over-reaction to the events of 2008 leading to very fat 'Risk' departments (where few people actually understand genuine risk, but they sure have a fine list of forms that need to be filled in before anything can actually be done; and c) the fact that the organisations have been so big that the people at the top simply have no conception what thousands of their employees actually do, day in, day out. (I proved this to my satisfaction four years ago when I spent a month physically drawing out every department in every division of a large clearing back on twenty square metres of the CEO's dining room wall, and adding selected metrics for each one [number of people, average salary etc]. "The Wall", as it became known, stayed there for several months, during which time every executive and some non-exec directors visited it, and to a person expressed that it gave them insight into the company they'd just never previously had. Other than for their part of the business, they simply didn't know who did what, where, and what it cost beyond a headline figure).

Anyway, CV19 is beginning to shine a light on these non-jobs. They've been under-employed: the committees they support with their myriad Powerpoints haven't met as decisions have been escalated up the organisation much more quickly; the meetings that fill their diaries haven't been needed as a result - and the world hasn't stopped turning, something the people at the top have noticed.

Now, it would be perfectly reasonable to posit that it's only in the long term that the effects of the lack of activity of middle managers are likely to be felt. You could argue quite plausibly that the BC networks of information gathering and transmission that feed critical and strategic decisions are supporting what's going on now, and as they wither so the quality of future management decisions will deteriorate. I don't buy that - information is frequently sifted, refined and presented in such do-my-career-no-damage ways as to become practically meaningless. And if it's not diluted like that, it's bound up in 84 page presentations that simultaneously serve to both justify the existence of the author, and scramble the mind of the recipient, likely a senior decision taker.

I don't think I'm describing anything that the execs haven't known for themselves in their hearts. But these people have been their insurance policy, their don't-go-to-jail card, and I suspect that they'd probably prefer to keep them in place if they could. But after CV19 the world is going to be a very different place, one where they will be under immense pressure to cut costs, and the traditional approach of everyone finding 10% just isn't going to be enough. They're going to have to be radical, and they now know the uncomfortable truth that they employ lots of people that they don't really need.

So my prediction is that we're going to see huge swathes of redundancies in banking, but not from the sources of headcount reductions over the last decade like branches and call centres, but from the functions that have been growth areas in recent times - risk, chief operating office, transformation and related functions. (We'll also see branches stay at their current levels of service, and call centre numbers shrunk further, as everything goes online, but that's for another day).

And why would banking be any different from other industries dominated by large firms? It may have a greater risk management component than elsewhere, but my strong suspicion is that many sizeable operations will have been shocked at just how few people it takes to keep the show on the road. Not everyone with a non-job will be fired; I'm sure some will be transferred to more productive roles, but plenty will be shown the door. So while journalists and business writers are speculating on the long term possibilities of working from the home, the impact that will have on organisational culture, and the usage and rental yields of commercial property and so on, I sense that the real story might be an entirely different one - the fact that the virus has illustrated very starkly that there's a vast number of people being employed on very comfortable salaries (I'm talking in the £40k - £80k range, and more in London), who just don't need to be. Stand by for lots of middle class unemployment. 

Thursday 7 May 2020

New name, new style

Welcome to my updated blog title and style. It was time to move on, update things a bit. "Monmarduman" was never that catchy, and nine years on from its coining, it's a bit meaningless. In any case, the word was all to do with a variety and cycling and running challenges, and my subject matter's moved on and diversified a bit since then.

My themes are chosen at random, and are pretty much based on whatever seems worthy of comment, or personal stories of interest, at the point in time I write them. Something that I think I'm going to drop in now and again, however, is insight into the industry in which I do my consulting - banking and financial services. That sounds like it'll be about as interesting as watching the proverbial paint dry, but I've seen (and still see) some pretty hair-raising things, which I'll attempt to recount within the boundaries of not excluding myself from ever working again...

In the meantime, I'm going to reproduce a passage written by Lionel Shriver in the 18 April edition of The Spectator, for it captures exactly what I had in mind in renaming this blog:

"I am a type. I don't like groups. I maintain few memberships. I question and resist authority, especially enforcement of rules for the rules' sake. I'm leery of orthodoxy. I hold back from shared cultural enthusiasms.  Everybody's met such obstreperous specimens - and some readers out there are just like me....We don't joyously belt out national anthems, and recently, to popular disgust, many of us curmudgeons don't lean out our windows every Thursday at 8 p.m. to clap for the NHS".

To my own disappointment, I'm not as publicly rebellious as Lionel. I do mine more quietly. But I don't clap the NHS. Nor do I wear a poppy in November, celebrate VE Day or burst to get Christmas decorations up. I don't like music festivals, religious gatherings or any other acts of mass worship. They unsettle me. Formal occasions bring out the 12 year old in me - when my youngest graduated at Oxford most of the degree awards ceremony was in Latin, which I couldn't help but provide an idiotic translation for my party. The same is true at weddings and funerals - the former depress me and the latter make me want to crack jokes.  I hate any kind of orchestrated jollity.  Parties leave me cold.

I'm sure some of this is down to the simple fact of being an introvert (though work and life has forced me, like so many other introverts, to develop an extrovert front).  But some of the rest of it could be down to one or more of: personality failings; a strong sense that I need no help when it comes to determining what's moral (or not); and an undoubtedly arrogant belief in my analytical abilities.

I probably wouldn't choose the words in the last couple of paragraphs if I were entering my details on an online dating website. Fortunately, those days are over, so instead I can use my darker side to being interesting on here (hopefully), and beginning to discuss things - particularly in and from my professional world, as I say - that previously I haven't. Let's see how it goes.

Friday 1 May 2020

Coronavirus Diary

Normally, I write to be read by others, and while of course I'm delighted you're reading this, today's words are more intended for me to look back on in the future. Because what we're living through is so extraordinary, so unprecedented, that I want some record of how strange it felt. I also want to have a punt at guessing some of the things happening now that we'll look back at as acts of madness.

Normally at this time of year, at least for the last few years, both me and the missus would be in France. We normally go out to our house there at the end of March/start of April, and spend a pretty intensive month mowing, digging, planting, pruning, power washing, painting, airing and cleaning to get the place looking good after a winter unattended.

It's not all work of course. Life out there settles into a pretty agreeable routine of dog walking (one early morning long, two short ones each day), exercise, garden and house chores, at least one beach or coast path walk each week, a meal out, homemade pizzas and fizz on Friday nights, homemade curry on Saturday nights, and the missus off to a vide grenier ("empty loft", or a car boot) or two on Sunday mornings. If that sounds banal, it is. Conversation can get no more exciting than whether the lights on the wind turbines we can see from our windows have turned from red (night time) to white (daytime) yet, or whether Raymond (84 year old farmer-widower-neighbour) has trundled off to market yet. But it's all immensely relaxing for the most part, and it has its rewards. Here's an example (the view from the back door):


There's none of that this year of course. Goodness knows what the place looks like, but one this that's certain is that it won't look like the pic above. And neither will the veg plot be as pristine as this, nor the grass as short:


But hey ho, it's hardly the biggest problem in the world. We started from scratch in 2015, and we'll do so again. I just hope we can get back there in the second half of June so that we can at least harvest some of the blackcurrant crop.

At the moment, however, we're both at home in Macclesfield. We're among the lucky ones - we're both working, we're healthy, we have outdoor space and great walking both from the front door and within a very short drive for properly spectacular hills and countryside.  Day-to-day life, particularly the working at home bit, gets a bit repetitive and claustrophobic intermittently, but on the other hand getting up early and getting dressed properly helps maintain an important sense of routine and order.

For us, there are some good things to come out of this lockdown. Zoom and Microsoft Teams have been a boon to us, as for so many others. I find audio-only conference calls at work really unsatisfactory, but adding video transforms the experience.  I'm hoping that the realisation that we can be effective from home endures as life gets back to normal, and the 3-4 days a week I spend in London when I'm working can become 1-2. Less London (and its transport systems), less time in air-conditioned offices, and more nights in my own bed would make continuing to work generally much more tolerable.

Another good thing is that because seeing family is currently impossible, we seem to be making more effort to use technology that properly keeps us in touch - FaceTime in particular is great for that. We're also lucky in that we exist in some great communities, virtual and otherwise. Every Friday from 5 till 6.30 it's the missus' Head of IT doing a DJ set from his Manchester flat, every Saturday from 3 till 4 one of our neighbours hauls his Marshall speakers into the back garden for an hour of 'Uplifting Classics' which everyone round and about seems to enjoy, and there's been online quizzes, yoga and Zoom 'virtual background' competitions.

That's all lovely, but we're very lucky. If we had school age kids to try to entertain and educate, or if we had no outside space, or if our income had dried up, life would, I suspect, feel even harder and more unforgiving at the moment than it does usually.

But there are plenty of aspects of this lockdown that feel bad for everybody, and we'll maybe come back to look at as madnesses of the period, including....

The Police - they seem to be on a mission to break the policing-by-consent model. They've allowed the perception to grow that they a) find it easier to fine and boss-around generally law-abiding people than go after the difficult, awkward cases, which their approach to policing lockdown has reiforced; b) have a role to play in "making society fairer". They probably do, but it lies in ensuring that victims and perpetrators of crime are treated equally, regardless of cause, class or income, rather than pathetic virtue-signalling about how much they care about 'social justice'. Their weekly homage to the NHS is particularly excreable.

Talking of which...the slogan "Protect the NHS". I understand the reasons for this, I do, we don't want the health service overwhelmed, we need to manage the peak, blah blah, but the back-to-front nature of a key government message, if you take a step back, is astounding. The NHS should be there to protect us, and the fact that it wasn't ready to do so must surely represent a massive failure of planning and management. Even worse, the "protect the NHS" message has been taken to heart so literally by the masses that not only are the diagnoses of cancer down from c.30,000 a month to closer to 5,000, but A&E admissions for heart attacks and strokes are much reduced. I have a strong suspicion that when the stats are compiled we'll find that for every CV19 death we saved through hospitals not being overwhelmed, there were two others from late/no diagnoses and lack of timely treatment. But hey, the TV cameras won't be there to record those, so it'll be a much smaller political issue, and the government and its advisors will have been seen to have done ok.

And on that note, the uniformity of the instructions to the public has again seemed nonsensical to me. It's as though people are incapable of understanding more than one childishly simple piece of advice. Maybe they are, but I don't think so. This is what I'd have said:

- regardless of what the stats are around infection rates, country comparisons, it's clear that the vast majority of young people will escape unscathed if they get CV19, and the vast majority of the elderly and those with serious health conditions are at great risk from it.
- so, if you're under 50 with no health conditions, go about life as normal, but when you're in public, wear a mask and keep your distance from others (as well as plenty of hand washing an no face touching)
- if you're 50 to 70 and generally fit you might want to be a bit more careful. Carry on as per the under 50s, but don't mix with anyone outside of your immediate family.
- if you're over 70 and/or have a serious health condition, be bloody careful. Stay at home, don't mix with anyone. And we'll mobilise to bring you everything you need. (It seems lunatic to me, for example, that over-70s have been going to supermarkets because they haven't been able to get delivery slots, while under-50s have been allowed to continue to receive their groceries at home; that's fine if all the oldies are taken of, but direct capacity there in the first instance.

I'd have shut all the places where people come into contact as a matter as course - pubs, restaurants etc. - but to have garden centres, council tips and loads of other businesses closed as a matter of course regardless of their staffing or customer profile seems wantonly destructive to me.

But then it's all about political perceptions and the fact that most people are incredibly bad at understanding and assessing true risk. Not only do they not get the right way to quantify and compare risks is to compare their impacts with the probability of each event occurring, but even more subtly (and this is illustrated by the cancer diagnosis point above), it's possible that by focusing on a single risk and minimising it as much as possible, you actually increase the overall risk load by other risks becoming more likely.  Aside from probability theory in statistics, formal education doesn't really get close to touching this stuff, and it should. Not only would it increase the chances of having a more sophisticated electorate, less susceptible to media scare stories but it would also have an impact on how people manage their finances and take significant life decisions. I won't be holding my breath though.

Well that was a bit of a journey, from my back garden in France to what should the on the national curriculum. I'll stop there, with the hope that I'll be able to look back and read this in 2025 with the world sort-of back to normal.