Operational Complexity: Risk Model Insufficiency
Most readers will be familiar with the above linear Risk Matrix Model. This graphical representation of risk exposure is useful but strict adherence to it can lead to a false sense of security.
Systemic Risk Management
The real world is very complex with many moving parts. The potential interaction of processes, events and other challenges can lead to disaster. It is often the case that the combination of a number of seemingly unrelated and in and of themselves potentially minor events can lead to catastrophe.
A systemic approach to risk exposure is appropriate. Field operations usually involves several to many somewhat disparate processes and individuals.
Typically, the operator will have individuals in the field as well as the office working together. Contractors and sub-contractors are similarly constructed. The number of interactions can grow exponentially in a large project or program.
Therefore, it is important to ‘see’ risk as a dynamic interacting model. For example, the following quotation is a straightforward presentation of the actual risk field operators face.
“Planning for the abandonment of Macondo was extremely complex. The fundamental source of that complexity was a phenomenon well known to systems engineers: the number of potential pairwise interactions among a set of N elements grows as N times N-1, divided by 2. That means that if there are two elements in the set, there is one potential interaction; if there are five elements, there are ten protentional interactions; ten elements and there are forty-five; and so forth. If the interactions are more complex, such as when more that two things combine, the number is larger. Every potential interaction does not usually become an actual one, but adding the elements to a set means that complexity grows much more rapidly than ordinary intuition would expect.”[i]
The authors’ note that NOT all combinations can happen, but the possibility of several is likely. Many decision makers do not expect exposures as great as they likely are in a complex environment.
So how great is your risk? The following calculator will give you a perspective on your organization’s exposure. It is straightforward and easy to use.
You are only required to input two variables:
n = the number of elements
m = elements from n in certain order, it is arrangement
Taken from the Macondo model above, if n=10 and m=2, the number of combinations of m from n equals 45.
Addition data the calculator provides:
Each ordered set of n is a permutation
Generally, the number of combinations of m from n with repetitions is not useful for our purposes other than the recognition that repetition is possible.
This calculator does not indicate where risk lies. As the authors of Deepwater Horizon: A Systems Analysis of the Macondo Disaster suggest, it helps decision makers better understand the nature of their complex environment.
Simple risk models may have their place. They are useful for presentation purposes. However, they are insufficient when assessing the exposure of today’s complex operational situations.
High Reliability Management requires that decision makers NOT simplify the complex. Understanding the level of exposure using systemic risk management techniques can help clarify organizational threats.
Are Your Organization’s Risk Management Techniques Robust Enough?
For more information on Risk Mitigation check out our Operational Excellence Platform.
[i] Boebert, Earl and Blossom, James M. (2016). Deepwater Horizon: A Systems Analysis of the Macondo Disaster. Cambridge, MA: Harvard University Press. pp. 65-66.
For those interested, this is the math for the calculator. It is taken directly from the Planetcalc website.
So, assume we have a set of n elements.
Each ordered set of n is called permutation.
For example, we have set of three elements – А, В, and С.
Example of ordered set (one permutation) is СВА.
Number of permutations from n is
Example: For set of А, В, С number of permutations is 3! = 6. Permutations: АВС, АСВ, ВАС, ВСА, САВ, СВА
If we choose m elements from n in certain order, it is arrangement.
For example, arrangement of 2 from 3 is АВ, and ВА is the other arrangement. Number of arrangements of m from n is
Example: For set of А, В, С number of arrangements of 2 from 3 is 3!/1! = 6.
Arrangements: АВ, ВА, АС, СА, ВС, СВ
If we choose m elements from n without any order, it is combination.
For example combination of 2 from 3 is АВ. Number of combinations of m from n is
Example: For set of А, В, С number of combinations of 2 from 3 is 3!/(2!*1!) = 3.
Combinations: АВ, АС, СВ
Here is the dependency between permutations, combinations and arrangements
Critical Mass: Value from the RBC Framework
Nuclear physicists define the term, “critical mass” as the amount of fissile material whereby a nuclear reaction is self-sustaining. From that original definition, the construct is further developed along societal and political terms as a function of the environment and number of adopters and their interdependencies that create enough of a consensus for individual actions that sustains an undertaking.
In 1996, the author published the first of several case studies on a societal interaction model based on the Relationships, Behavior and Conditions (RBC) construct among economic actors. Previously the model was only in the domain of academia.
This blog addresses contemporary issues from the RBC perspective and whether in the present state they are sustainable or not. Many readers may be familiar with the “Innovation Adoption Curve.” RBC seeks to enlighten the causality of behaviors that cause movement towards the critical mass that generates movement along this diffusion curve.
- Home Improvement Case Study: What’s the Value Proposition of Service Providers and Why Does It Matter to My Business? May 14, 2019
- Elevator: Going Up or Going Down? April 28, 2019
- Event Horizon: Towards Singularity April 25, 2019
- I Hate These Things: Why Does This Always Happen to Me? April 7, 2019
- You Have 10 Minutes: Maybe April 1, 2019
Other Blogs Dr. Shemwell Authors
Dr. Shemwell is an author for the following 3rd party blogs.
Governing Energy Blog
BTOES Insights is the content portal for Business Transformation & Operational Excellence opinions, reports & news. Dr. Shemwell is a contributor.
Consult 2050 connects organizations with a wide range of consultants all around the world. The firm operates an online marketplace for consultancy services.
About the Author
Dr. Scott M. Shemwell has over 30 years technical and executive management experience primarily in the energy sector. He is the author of six books and has written extensively about the field of operations. Shemwell is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling Operational Excellence and regulatory compliance management. He has studied cultural interactions for more than 30 years—his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of societal relationships.