Swacch Bharat Campaign

Gandhi ji said cleanliness is next to godliness. He inspired his followers by picking up the broom and leading the cleanliness effort. Prime Minister Modi is taking the same course of action. In this day and age where Indians have started thinking getting their hands dirty to do basic cleanliness chores  is beneath their dignity, here is a Prime Minister who is not hesitating to do it himself.

It is a shame that a country that is aiming to become a global power, the citizens are not willing to do their bit for keeping the country clean. When each citizen in the country is messing it up, then it becomes each citizen’s duty to maintain civic sense and keep the country clean.

Government schemes itself are insufficient and government can only do so much. For all the funding provided for various social welfare schemes, 50% of it did not reach the entitled beneficiaries. In respect to sanitation, the schemes effectiveness was just 36%. Hence, the public has to ensure that funds are not wasted, and are utilized effectively. They have to take ownership of the areas in their neighbourhood to ensure cleanliness.

Clean public areas reduce environmental and health risks. With cleaner environments, the likelihood of various viruses and diseases transmitting through air and water reduce. Hence, everyone gains by ensuring cleanliness.

Here are a few suggestions on organizing cleanliness drives in public areas:

• Choose a road, park, or field that requires cleaning and is a complete eyesore.
• Form a group on the social networks for your neighbourhood and societies.
• Contact your local government municipal authorities to find out about their plans and efforts, and seek their cooperation.
• Select a weekend morning; organize brooms, garbage bags, and cleaning gloves for everyone.
• Intimate everyone, reach the allotted location, and collect all the garbage.
• Get the local municipality garbage truck to pick up the garbage bags.

You can also talk to your organization’s Corporate Social Responsibility team  to start these efforts near the office areas, markets and customers. You can take sponsorship from organizations to lead the effort. If you are a young employee, this is a good way to learn project management and leadership skills.

Now cleaning up a locality might not sound the best way to spend a Sunday morning. But trust me, I have done it and it is a great way to meet new people. When one meets new people in conferences and restaurants, one is always putting up an appearance. However, when one is picking up garbage, one can actually understand the person fast because the conversations are real and down to earth. It is a good way to make some real friends.

Another plus is that after a couple of hours of hard work, one has burnt a few calories without going to the gym and can have a good breakfast without the guilt. If you start early, you will also see the sunrise.

Above all, you have done a great service to the nation and contributed your bit to keep India clean.  From all angles, it has a whole lot of positives.

Indians, make India the cleanest country in the world. As Prime Minister Modi said, if we contribute a couple of hours each week, we can do it. Make India Proud.

Wishing all my readers a very happy

Gandhi Jayanti. Let us support our

Prime Minister to make Swacch

Bharat Campaign successful. 

 

Surrogacy – A Boon for Working Women?

A surrogate mother and delivery of a child costs approximately US$12,000 (Rs 720,000) in India. A mid-level female professional’s annual salary is more than twice this amount. Add to it the salary loss a female has post-delivery is she takes a break. Then consider the opportunity loss she suffers for the year she is pregnant and post-delivery, and the long-term impact on her career. The idea of surrogacy appears cost-effective.

If profit and loss analysis is done, surrogacy is the best option for working women. However, not all decisions can be based on money alone. So let us talk about the ethical, emotional, and social dilemmas of surrogacy. Maybe then surrogacy doesn’t sound like that great an option.

1)     Surrogate Mother’s Perspective

In India poor women who have one to two children opt for becoming surrogate mothers. They earn Rs 500,000 to Rs 600,000, which is equivalent to 8-10 years of their salary. The reason they consider this venture is that they can provide for their own children. For them it is good money since they do not have any other viable and legal means to earn a similar amount. It is a way out of extreme poverty.

However, in most of the clinics, surrogate mothers stay at a special accommodation and are provided food, lodging and medical facilities. They are allowed to meet their own family but not stay with them to reduce risks. Hence, the children of the surrogate mother suffer separation and lack of motherly care for 9 months of delivery time. They are forced to make that sacrifice, as their parents are concerned about their future. Is it right for the society and parents to ask children to make this sacrifice for their future?

The next issue is that the surrogate mother goes through a cesarean operation to deliver. She is taking all the delivery risks and health risks to deliver a child of an unknown couple. She carries the child within her womb for nine months and then hands it over to strangers. Doesn’t this amount to exploitation due to poverty?

2)     Child’s Perspective

As such a child has no say in how it is conceived. However, a question needs to be asked to child born from surrogacy – would they have preferred natural birth?

According to medical studies, a child recognizes the voice of the mother from the womb. It also develops physically according to the food provided and psychological stress of the mother. A study showed that the children born to mothers pregnant during the Dutch famine in 1944 ( known as Hunger Winter) developed health problems later in life because they survived on scarcity in the womb. Their bodies developed physically to survive on scarcity. Later on in life when there was abundant food supply their bodies couldn’t adjust.

Considering this, the child will develop physically and psychologically according to the stress and health levels of the surrogate mother. It will get attached and look for security in the voice of the surrogate mother. It will want milk from the surrogate mother.

As a society we are concerned when mothers abandon their children. However, in surrogacy, a child faces physical and psychological separation from the surrogate mother on the day it is born. A study shows that children born through surrogacy face higher level of depression and suffer from emotional issues. Hence, the question is – will they face lifetime abandonment issues due to surrogate birth.

3)     Adoptive /Genetic Mother’s Perspective

A professional women’s biggest dilemma is to have a child or not. If she does, she has to sacrifice her career, if she doesn’t she has to sacrifice her basic need of feminine fulfillment. While a man is not  questioned about his professional competence after becoming a father, a woman has to face doubtful superiors till her child becomes an adult.

The modern day medical science has provided her with an option to go for surrogacy. Nevertheless, will these nine months really have a long-term impact on her profession when she will be questioned every time she asks for leave because her child is sick.

Is it ethical for organizations and society to expect a woman to make a choice between professional success and personal happiness? When professional women talk about guilt of leaving the child home, won’t she feel guiltier on not having her child biologically?

Moreover, will she be able to form a strong relationship with her child born from surrogacy? Will the relationship be that of a mother and adopted child? What will be the long-term psychological and emotional impact on the mother when a child withdraws from her or she feels guilty because she didn’t physically bear the child.

The situation is different if the mother suffers from health issues and there is risk to her child or herself. Then she is fulfilling a dream through someone because she herself is incapable. However, when she is physically fit, the issue takes different proportions.

4)     Biological Father’s Perspective

A man’s biggest psychological insecurity is that he doesn’t know whether the woman is carrying his child or has he been fooled. Before DNA tests, men compensated this insecurity by falling in love, getting married and demanding fidelity from the mother of their child. The social norms were geared to ensure that a man doesn’t bring up a child, which is not his.

To this day, men are willing to sacrifice much for the mother of their children. Even when they don’t get along, they bestow respect and care to the woman for bearing their child.

Now contrast this with the option that they are bearing a child from a woman whom they don’t know and is not their wife. How is the man supposed to psychologically shift gears, care for his wife while ignoring the surrogate mother? He has to change generations of social thinking built into his psychologically.

Moreover, is his wife is healthy enough to bear children, then he has to struggle with the fact that she doesn’t want to physically trouble herself by having his child. She is not willing to make any sacrifices for him or his children. In such a situation, will the man feel loved by his wife, and will he be able to continue to love his wife? What will be the long-term impact on the marriage if a woman chooses to use a surrogate mother without the willingness and consent of the father? Moreover, will the man be able to have the same relationship with the child or will he feel like an adoptive father?

5)     Social Perspective

Presently, the number of children born through surrogacy is low. However, with the strides in surrogacy, cloning, and medical science, it is possible that in the next couple of decades surrogacy becomes more prevalent.

Then a couple of social behavior and culture issues need to be thought about. If the number of surrogate children increase will social conflict and disturbances occur on lines similar to ethnicity, race and color. Will the surrogate children feel discriminated against and should there be special guidelines formed to deal with the issue?

Will the society suffer from lessor level of social bonding? What will be the effects on altruistic nature of humans because childbirth is considered altruistic – a mother sacrifices and risks her life for it. Will the generation become more detached from their parents and face issues of isolation, abandonment, and depression. Will it suffer identity crises?

Closing Thoughts

To some questions there is no easy answer. Humans may be able to justify surrogacy when the mother suffers health issues. However, it is difficult to justify surrogacy from a monetary perspective when the moral, emotional, and psychological cost is so high for all parties concerned. It is not a onetime cost, it is a lifelong cost that each family member has to pay. So do you think surrogacy is an option for working women? Share your views here.

 References

• Womb on Rent
• Dutch Famine of 1944
• Surrogate born children likely to suffer depression

 

Managing Systemic Risks in Organizations

The gross turnover of top 100 multinationals is higher than the gross domestic product of a few countries. As it was obvious from the financial crises, organizations employing a few hundred thousand employees can rock the global financial stability. From then on, a lot of discussion is occurring around systemic risks. However, I wonder about the actual momentum in addressing systemic risks.

As per my understanding, an inaccurate perception has formed that governments have the major responsibility to address systemic risks and not the organizations. The picture below depicts the increasing level of risks for human civilization or society as a whole and the increasing level of risks within an organization. Though we do not see linear relationships, they are interconnected. While an organization is a subset of the civilization, their large sizes have also made it a significant component of creating systemic risks.

 

 

Another fallacy is that organization’s need to track systemic risks at the global level alone. From the financial crises, it was obvious that the Retail Housing Loan departments of US Banks shook the real estate industry. Various CDOs of banks investment divisions were the cause of collapse of major banks. Hence, something as small as the functioning of a department, process or product can destabilize the industry and economy when incorrect practices are followed in multiple organizations.

Moreover, senior management of organizations that have implemented Enterprise Risk Management (ERM) believe that systemic risks are automatically addressed. None of the ERMs is going beyond strategic risks. The focus is mostly on operational and tactical risk coverage. Unless the risk management department has taken concrete measures to identify systemic risks, in all probability they are unmitigated.

Lastly, for most of the systemic risks, the organization by itself can only partly mitigate the risks. Except for taking insurance, they cannot develop and implement full-fledged solutions to treat the risks. Though the impact of systemic risks is huge, the lack of understanding, information and solutions, make organizations negligent about identifying and addressing these risks. Hence, the question is – what should organizations do to manage systemic risks?

1. Global Systemic Risk Monitoring Group

Within the risk management department there should be dedicated resources tracking systemic risks from process to country level and reporting to the global group. In the interconnected world, the risks in one country impact other countries. For instance, consider the attack on Malaysian airplane by rebels in Ukraine. A geo-political risk of one country has brought an organization of another country down. Hence, now the risks have to be viewed from a global perspective. To do this organizations must incorporate the group within the organization structure, deploy funds and resources, use technology to connect and track risks at a global level.

2.  Connecting With National Risk Boards

The 2014 World Bank Risk Report suggests formation of National Risk Boards (Same name, could they have got inspired by this blog :)). This will be a huge plus, since risk identification and mitigation will be done at a national level. For instance, if a large country like India were connected at district, state, and national level through risk boards, the level of risk management would improve significantly.

Moreover, this will facilitate in addressing inter-state risks and cross border risks. For example, cyber security threats mitigation requires coordination within the country and significant amount of international collaboration. The national risk boards of countries become the focal point for international cooperation and collaboration for risk mitigation. Developing relationships with the board members and participating in the initiatives will help organizations in dealing with systemic risks.

3.  Connecting With Industry Risk Boards

The systemic risk group needs to connect with the industry risk boards and regulators to capture the industry level risks. For instance, Back of England conducts a half-yearly survey to determine systemic risks in UK financial sector and the confidence of the organizations in dealing with it.

If organizations facilitate in formation and management of industry risk boards, they can cooperate with the competitors to mitigate industry level risks. Relationships with international industry boards would be a huge plus in acquiring knowledge and formulating plans.

4.  Assessing Preparation at National Level

The World Bank report states that investment in risk mitigation and prevention is low, and most of the expenditure is done during and after a disaster to recover and continue operations. Therefore, the challenge is that risk identification may not result in developing and implementing risk mitigation plans. For example, various cities in India regularly suffer from floods during monsoons. ALthough the government knows the problem and solutions, it has not done much to resolve the issue. There are ongoing battles between city, state, and national level for risk prioritization.

That is, the same risk may have different impact and loss level due to national level preparation. Organizations need to assess the level of preparation of government and local communities to determine the impact and develop risk mitigation plans accordingly.

5.  Assessing Impact at Social Level

Previously, organizations were insulated from the society to some extent. The social networks have changed the scenario, and any incident can become an explosive issue. Hence, impact has to be calculated at social level rather than at an incident level. For instance, recently a six-year-old girl in Bangalore was gang-raped in school by her teachers. Last weekend, parents in Bangalore organized marches to demonstrate their anger against the schools lackadaisical attitude towards children security. Police has lodged complaints against the school and politicians are talking about closing the school.

Presently, rape, women, and child security are sensitive topics in India. India is fourth unsafe country in the world for women. Hence, a single incident can close down an organization. Therefore, risk managers need to identify sensitive issues related to systemic risks and extrapolate the impact at city, state, country, and global level to determine impact of various risks.

Closing Thoughts

Systemic risks impact is sometimes more than losses of earthquakes, tsunamis and nuclear disasters, hence they cannot be ignored. Higher level of focus is required within organizations, industry, community, and nations to build processes, institutions, and infrastructure to identify and mitigate systemic risks. Timely investment in this area can save billions of dollars. Hence, risk managers need to put their thinking caps on, develop concept notes, and influence senior managers to deploy funds in managing systemic risks.

Innovative Approaches to Fraud Risk Management

The Javelin Strategy & Research Identity Theft Report 2013 states that 5.16% of US customers suffered from identity theft amounting to US$20.9 billion. Moreover, Tablet users had the highest probability of fraud at 9.6%. Victims of data breach had a 22.5% likelihood to becoming fraud victims. Hence, it is clear that while organizations are deploying more processes, technology and resources to prevent fraud, the fraudsters are having a ball. One thing fraudsters do, is to think outside the box. So we have to take a leaf out of their book and be innovative in our approach to prevent and detect fraud. Below are some ideas on the same. Share with me your thoughts on what you think about them.

 1)    Voice Print Analysis

Presently, in most of the banks, a call center agent asks a set of questions to verify the identity of customer for telephone banking. Internal employees, external fraudsters and organized crime groups can easily steal information about date of birth, place of birth, address, secret questions, and card number.

Now voice-printing software is available for authentication of voice. The system automatically verifies the caller voice with the customer’s sample voice to identify fraudulent callers and protect the account.

Secondly, maintain voice records of earlier fraudsters. When system detects a fraudulent caller, it automatically checks against the previous fraudulent call records. Hence, the system will flag if a fraudster has previously conducted a telephone banking fraud. With this, it will be easy to nab the fraudster, if the police had caught him/her in a previous case.

A new voice identity technology is available  that captures the tone of the voice and the type of communication. The software can monitor quality of calls and customer satisfaction from call center agents’ conversations with customers. This will cut manual quality control checks significantly and result in savings in quality control department costs.

2)    Track through Photographs and Location Mapping

Besides having voice-printing software, use a system similar to WhatsApp to identify of customers. WhatsApp sends text messages, images, video recordings, audio recordings, and the location. If banks invest in a similar application and allow customers to download the application on their mobile phones and tablets, the number of telephone and internet frauds will reduce.

If a fraudulent caller is flagged, then the call center agent can request the customer to send a selfie or video. If it is the wrong person, usually the caller will cut the conversation and drop the attempt to commit a fraud.

If the caller is able to circumvent this control, the application will also track the location. Applications track the frequent places a customer visits or calls from. If the caller is from an unusual place, then s/he can be tracked immediately. For example, if a British customer is tracked to a place in India, the call centre agent can ask the caller to verify their location.

3. Track Spending Behavior

Sometimes high value fraudulent payments are processed resulting in huge losses. A study done by Vivek K. Singh*, Laura Freeman*, Bruno Lepri, Alex (Sandy) Pentland for “Classifying Spending Behaviour using Socio-Mobile Data” determined the spending behavior of customers from the social interaction patterns on mobile phones. For example, it showed that more social couple and couples with diverse business interests tend to spend more.

Using big data, insights on spending behavior of customers can be analysed based on personality traits. Tracking social patterns and payment patterns can flag out anomalies when the payment is not in line with the spending pattern. Moreover, a location map can identify the location of beneficiaries of previous payments . Hence, fraudulent payments can be identified at the time of processing itself.

Another advantage from this technology can be for processing retail loan applications. If prospective customers are willing to give the data of mobile phone transactions, then at the time of processing the application itself, the bank can identify which customers are likely to overspend and default in future. The bank can ask for additional securities and guarantees.

Moreover, if the application is installed in the loan customer’s mobile after loan disbursement, the moment s/he is about to overspend which might result in default of EMI, the bank can send the customer an alert to pay the EMI first.

 4. Fraud Risk Conversations

According to psychological studies on emotional intelligence, Negative Emotional Attractor’s activate defense systems and build resistance to change. On the other hand, Positive Emotional Attractors (PEA) activates parasympathetic nervous system and makes a person more conducive to listen and change behavior. An effective team has a 3:1 ratio of PEA:NEA. Another study shows that improving peer-to-peer conversation increases productivity of the team by 30 to 40%.

However, risk management reports are mainly critical hence activate NEA. Moreover, the communication, training material, and code of conduct are all geared towards creating fear and guilt. Hence, it is not surprising that attempts to educate business teams on fraud risks fail.

Fraud risk managers can build a positive interaction model using technology platform. A study conducted by Erez Shmueli_, Vivek Kumar Singh_, Bruno Lepri and Alex ”Sandy” Pentland on “Sensing, Understanding, and Shaping Social Behavior” enables tracking of human behavior through big data analytics. The analytic helps in understanding the behavior, the tone of the conversation and the trust relationships between people.

Using this technology, an organization can use a social networking platform to communicate fraud risks through blogs, videos, and stories. The write-ups and stories should be from the business teams. From the comments section, the application can identify the key influencers and trust holders to bring about change. Thus, change the conversation to change the behavior.

 Closing Thoughts

 The days of holding a gun to rob a bank are nearly over. Fraudsters use social engineering to obtain sensitive information to conduct account takeover frauds remotely. Hence, organizations need to use socio-physics, social networks, and technology to beat the fraudsters in their own game. Being a leader in adopting the latest technology to prevent and detect frauds has an additional advantage, the fraudsters have not discovered the antidote to it. Hence, fraud risk managers have the right weapons to fight. The right tools can make a hell of a difference.

References:

1.  Javelin Strategy & Research Identity Theft Report 2013
2. Classifying Spending Behavior using Socio-Mobile Data – Vivek K. Singh*, Laura Freeman*, Bruno Lepri, Alex (Sandy) Pentland
3.  Sensing, Understanding, and Shaping Social Behaviour – Erez Shmueli_, Vivek Kumar Singh_, Bruno Lepri and Alex ”Sandy” Pentland

 

 

The Misconstrued Likelihood

Source: Lancashire Resiliency Forum

 

Have you ever thought of stopping the use of “likelihood” in preparing a risk matrix? The shocked reaction is – “how can we calculate risk without likelihood?” But seriously, how competent are we in calculating the probability of each risk. As risk managers, don’t we just check the box based on our judgment? The thought process is – earthquake – rare, hurricane – rare, data theft – occasional, and we don’t need data to make these judgments.

 1. Inaccurate Calculation

My claim is that all this is hyperbole and we draw inferences from inaccurate information. To substantiate my argument, here are two statements of the EY 13 Global Fraud Survey 2014 and Kroll Global Fraud Survey 2013/2014.

EY 13 Global Fraud Survey 2014 quote:–

“More than 1 in 10 executives surveyed reported their company as having experienced a significant fraud in the past two years. In fact, the level of fraud reported by respondents has remained largely unchanged over the past six years: from 13% in 2008 to 12% in 2014.”

 Kroll Global Fraud Survey 2013/2014 quote:

 “The incidence of fraud has increased. Overall, 70% of companies reported suffering from at least one type of fraud in the last year, up from 61% in the previous poll”

The EY report does not define “significant fraud” .Kroll report does state that “the economic cost of these crimes mounted, increasing from an average of 0.9% of revenue to 1.4%, with one in 10 businesses reporting a cost of more than 4% of revenue.”

 Now assume you do not have historical data on incidence of fraud in your organization and have to infer the likelihood of fraud from the above-mentioned statements.

 

Please share the logic you used to determine the likelihood in the comments section.

 2. Unidentified Representative Bias

Implicit in our judgment is representative bias, which only a discerning eye can decipher. For instance, read the following lines from the EY 13 Global Fraud Survey 2014.

“The survey results show a correlation between executive roles and willingness to justify certain activity when under pressure to meet financial targets:

►► CFOs are more likely than other executives to justify changes to assumptions relating to valuations and reserves in order to meet financial targets.

►► General counsel are more likely than other executives to justify backdating contracts in order to meet financial targets.

►► Sales and marketing executives are more likely than other executives to justify introducing flexible return policies in order to meet financial targets.”

How is this news worth reporting? Aren’t risk managers aware that employees are more likely to conduct frauds within their area of job responsibility and authority?

It would be interesting to know the probability of other departments (excluding sales and marketing personal) introducing fraudulent flexible return policies. Without that information, while conducting a fraud investigation we are likely to assume the fraud in sales department was conducted by sales personnel, whereas it is possible that another department personnel had done it.

Now if you want further proof of representative heuristic, here is a classic example of a study conducted on women’s propensity to conduct fraud by Steffensmeler. He concluded:

“There is reason to believe that over time increasing the number of female CEOs would reduce corporate corruption because women tend to promote a more ethical business climate rather than one that promotes personal and corporate profits at all costs, no matter what the potential societal costs or harms might be.”

Then he further states that lower rate of fraud might be because men do not conspire with women to conduct frauds and women may not have access to higher echelons of management to do big frauds.

However, it still does not explain how he has made the above statements. According to child psychology reports, both girls and boys in childhood have nearly equal tendency towards anti-social behavior though it reflects in different ways. For example, boys bully directly, girls bully indirectly.

So, are we saying nature and nurture have less impact on girls than boys because they are somehow hardwired to be more ethical? Alternatively, do you think that social conceptions are at play here because women are the weaker sex and therefore nicer. Wouldn’t it be interesting to study the tendency to commit fraud by giving equal opportunity to both genders to steal without fear of punishment and then find who is more likely to do so? It might show that women commit less fraud not because they are more ethical, but more fearful.

Closing Thoughts

Risk managers must ask themselves – “What is the worst that can happen if they do not check any box of likelihood? It is possible to create a bucket list of known risks, with undetermined likelihood and impact?” Adopt an alternative method or procedure, since inaccurate calculations lead to misguiding the management and implementation of wrong risk mitigation plans.

If we do not know something, why pretend to have a magic wand and claim knowledge. What is the harm in admitting that we do not have all the answers?

 

References:

1.  EY 13 Global Fraud Survey 2014
2. Kroll Global Fraud Survey 2013/2014
3. Women still less likely to commit corporate fraud 

 

 

 

 

The Unreliable Expert Advisers

Let me start by asking you a question – How many times have you written the word “expert” in your resume. Were you, like me, obsessed about becoming a subject matter expert or a thought leader? Are you an ardent devotee of people who profess expertise and give expert opinion in the media?

1.  Experts Know Better

If the answer to the above questions is yes, then let me ask you another question. If a political scientist and an astrologer are giving predictions of the political scenario in India 20 years from now, whose judgment will you rely on?

Philip Tetlock studied 300 experts over a 20-year period and concluded that experts were just slightly better off than the novices were. The expert group consisted of economists, political scientists, academicians, journalists and Phd. Another study showed that a rat was able to predict the location of food in a cage better than Yale students were.

Started believing in astrologers yet?

2.  Experts Perform Better

The counter argument is Malcolm Gladwell’s study, that to become an expert 10,000 hours of practice is required while continuously enhancing the skills to become an expert. Against this backdrop, one would assume that expertise matters and experts would perform better.

Below is a question, choose one of the options.

 

A study conducted by Eric Schwitzgebel showed that old and rare ethics books in the library were missing at twice the rate of other subject’s old books. That meant ethics philosophers were more likely to steal books than other lecturers were. Their expert knowledge on ethics did not prevent them from doing something completely unethical when it was in their self-interest.

Hence, all the knowledge and teaching of ethics would go waste if it were not incorporated in the behavior and personal value system. Does it not raise the question in your mind as to what is the point of teaching ethics in the organization? Maybe it is worth conducting an organization survey to measure the results.

 3.   Risks Can Be Accurately Predicted

After the financial crises, the bamboozled regulators were grappling to figure out why the idyllic scenario collapsed. All the posturing and ping-pong battles by the self-proclaimed risk management experts could not explain how they were caught napping.

The reason is simple. Risk managers and business managers can only predict risks based on their experience and information. For instance, in David versus Goliath battle, Goliath was well prepared. He was strong; he had a shield and a headgear to protect him. However, he was not aware that a slingshot could kill him. Hence, he did not mitigate that risk.

The risk managers and business managers do not have complete information about the present and the future business environment. Business managers normally take decisions when 70% of the information is available. Complete information is not available and the future is unknown. Hence, the next big disaster is always waiting at the next blind turn.

4.  High Performers Take Lessor Risks

Another assumption is that under-performing managers who are at the risk of missing their targets take higher risks than high-performing managers do. A study conducted by Ping Hu on mutual fund managers showed that both low and high performing managers are likely to take higher risks. The high performing managers do not face any employment risks, are comfortable in their positions; hence, take more risks. The under-performing managers take risks to achieve their goals. Hence, risk taking of managers is a U-shaped curve and highly dependent on the employment risks of the manager.

Therefore, the question arises what is the benefit of all the training given to managers. It allows managers to do proper risk mitigation and enables them to take higher risks.

Closing Thoughts

The above-mentioned studies shatter the fallacies and assumptions of confidently relying of expertise. An expert’s opinion may not be worth the paper it is written. So what is the advantage of having trusted advisers within the company?

The key is not to rely on insiders only. Have a panel of outside experts to give impartial view. Moreover, the experts shouldn’t be attached to their own opinion or view. The higher the levels of constructive confrontation within the organization, the better are the chances of doing effective risk management. Additionally, incorporate risk management processes within the business processes, and integrate them in employee behavior, practices, and reward system.

References:

1. Philip Tetlock’s book, “Expert Political Judgment: How Good Is It? How Can We Know?”
2. Do Ethicists Steal More Books? – Eric Schwitzgebel, Department of Philosophy, University of California at Riverside
3. Fund Flows, Performance, Managerial Career Concerns, and Risk Taking – Ping Hu Risk Analytics, Corporate Finance, Wells Fargo, Charlotte, North Carolina

 

 

 

 

Junk The Risk Assessments

Sorry folks for taking such a long break from blogging.  I was busy talking to a few angels who had entered my life all of a sudden. Now you are thinking that maybe I injured my head during the last five months. An adult talking about angels, absolutely insane! As kids we are happy to believe in Santa Claus. As we grow the social norms expect us to be more cynical, and we have to say – “We don’t believe in angels”. The question is –“have you seen any with your naked eye?” Off course not, but how does that prove that they don’t exist. In life, we have not seen many things, but we believe they exist.

So now, you are wondering what I am getting at.

As a risk manager has a business head ever told you – “You don’t have any idea of the business, this risk assessment is trash.” You wished to tell him that you did a proper job but he is absolutely is absolutely refusing to listen.

When business managers  submitted self-risk assessments, were you rubbing your eyes in disbelief? You could not figure out how they have rated the risks so high or so low, completely contrary to your expectations.

Is it possible that the risk assessments are frequently wrong and serve very little purpose except for completing the paper work? The idea of discarding risk assessments is scary as operational risk managers rely heavily on risk assessments matrix to assess the probability of occurrence of risk and the impact of the same. We advise business managers to complete self-risk assessments for their units. Organizations consider top twenty risks critical and depute resources to address the same.

Despite the risk assessments, unknown risks keep popping up. Risks rated low flare up into big issues. High impact low probability risks cause a whole lot of more damage than estimated.

Research on cognitive biases shows that subjective risk assessment done without data are prone to errors. Human beings have numerous biases in their thinking, due to which they tend to make incorrect decisions. Below is the list of biases I shall discuss in the next few posts:

1)      Representative Heuristic

2)      Availability

3)      Hindsight Bias

4)      Black Swans

5)      Conjunction Fallacy

6)      Confirmation Bias

7)      Anchoring, adjustment and contamination

8)      Affect Heuristic

9)      Scope Neglect

10)   Calibration and Overconfidence

11)   Bystander Apathy

You might be wondering whether the biases and heuristics really have any impact or is it just another aspect of psychology we can ignore. Let me ask you a question here:

 

Malcolm Gladwell did an analysis in his book David versus Goliath and stated that in 63% of the cases the smaller country defending its territories won the war. The powerful invader had to backtrack and generally lost the war despite its military strength. The small defending countries win because they use unconventional strategies for warfare, garner public support, and have higher commitment as they have more at stake if they lose. Then what percentage of the risk assessments of a war are incorrect? The loss of life and property are in vain.

Wait for the next few posts, as they might make you rethink on the conventional wisdom of risk assessment done by organizations.  

References: 1. Cognitive Biases Potentially Affecting Judgment of Global Risks – Eliezer Yudkowsky, Machine Intelligence Research Institute

2.  Probabilistic Reasoning by Amos Tversky and Daniel Kahneman

The LGBT Sandwich

Lettuce, grated cheese, bread, and turkey make a delicious sandwich. Unfortunately, Supreme Court of India has ordered LGBTs to cold turkey their sexual activities; else, they will face criminal prosecution. The poor souls are sandwiched between the Delhi High Court order that liberated them four years back and the Supreme Court latest order banishing them into dark ages. Maybe banning judges from issuing judgments on the last day of service that impact nearly 10% of the nation’s population would benefit. Can India in this day and age declare 12 million Indians as potential criminals because of sexual preferences?

1.  Is it a Sin?

If God created humans, then why did he create LGBTs if they are supposedly immoral? Do we say a person is evil because he has one blue eye and one black eye? Are differently abled people born criminals? In the worst-case scenario, one can say LGBTs are sexually differently abled. No, I am not propagating this viewpoint. There is nothing wrong with LGBTs physically, morally or intellectually. They are as normal as heterosexuals are. Heterosexuals’ intolerant attitude towards homosexuals is wrong.

Heterosexuals must stop blaming the victim under the guise of religion. In ancient India LGBTs were part of the mainstream population and respected. For instance, in Mahabharata, Arjun dresses up as a woman for one year to disguise himself. Amba, whom Bhishma refused to marry, is reborn as Shikhandini. She exchanged her sex with a Yaksha who wanted to be a female, to punish Bhishma for rejecting her in the previous birth. Lord Shiva’s one form is of Ardhanarishvara – meaning the lord who is half woman. In one story, Lord Vishnu becomes Mohini, has sexual relationship with Lord Shiva and has children from him.

The Ottoman Empire funded Islam propagation in Middle East from the 13^th century. It decriminalized homosexuality during Tanzimat period (1839-76). In Persia, homosexuality and homoerotic expressions were accepted in public places. Male houses of prostitution were legally recognized and paid taxes. (1501-1723)

Hence, how can it be possible when the same religions are being followed from middle ages, previously homosexuality was an acceptable act, and now in 21^st century it becomes a criminal act?

Section 377 was imposed by the British Raj in India in 1857 to stop the British homosexuals fleeing to India. Now the western world has accepted homosexuality and Indian politicians are propagating repressive policy to meet their political ambitions. As usual, they have got it backwards.

2.  It is torture?

In my teens, I turned rather precocious. When my father and I went out, I checked out guys on the road.

When dad noticed my behaviour, he was horrified. Here is the conversation that followed:

Dad: What are you doing Sonia?

Irrepressible me: My eyes turn sore from studying, I am checking out eye candies to relax them.

Aghast dad: Your sister would never do such a thing.

Brazen me: Yeah, isn’t she a duh. What a waste of good looks!

Horrified dad: Your mom….

Unfazed me: If I had mom’s looks, I could get into so much trouble.

After a few weeks, dad found a practical solution to my problem. Whenever we went out, I was driving and he sat in the front seat, looking around. When I asked him why, he responded – “Health issues, heart problem, doctors told me to reduce stress.” Meow!

Every heterosexual child has a similar story to tell. As the child becomes an adolescent, parents try to gear their emotions, desires, and social behaviour according to the cultural norms of the society. The heterosexual adolescent runs to his/her parents for solace when facing the first heartbreak and rejection.

In contrast, see the nightmare an adolescent faces when s/he realizes that they are attracted to the same sex and not the customary opposite sex. Erik Erikson, the world-renowned psychologist developed the eight stages of psychological identity development model. According to him, between the age of 13-19 years, adolescents address the questions – “Who am I? What can I be?” through social relationships. This is the stage of developing one’s own identity and if a person is unable to do so, they live with role confusion during adult age. Between 20-39 years, an adult addresses the question – “Can I love?” through romantic relationships. During this stage, a person forms intimate relationships or if s/he is unable to answer the question, lives an isolated life.

An LGBT teenager learns to attach shame and guilt for their sexual desires. The teenagers realize that if they confide in their parents, they might reject them. Their friends will socially isolate and ridicule them, their teachers will rusticate them from school, and outsiders will exploit them. The intolerant society gives them a gag order for life. The children have no adult or peer to talk to and have to live through this nightmare all alone.

As an adult, LGBTs realize that they are capable of becoming celebrated artists, musicians, philosophers, scientists, corporate leaders and sports person as long as they are willing to live a lie. With their capabilities and talent, they can earn power, fame, and money. However, they don’t have the right to hold hands of a person they love. The heterosexuals have taken their right to live a happy and fulfilling life.

Heterosexuals don’t need to put homosexuals behind bars as criminals. They have already chained them for life and prescribed them extreme psychological torture. In desperation, they join social groups, religious orders and change countries to get social acceptance and a well-defined identity. Some fervently pray to God for mercy, some turn atheists. Others in anger wish to punish heterosexuals in the same way. They want to hurt the opposite gender for making them feel inadequate. The ultimate revengeful desire would be to make heterosexuals face social rejection and isolation, to show them the torturous lives homosexuals have to live.

Unfortunately, humans are geared towards blaming the victim. In rape cases, the woman is blamed – why did she go out, why was she walking alone of the road, why was she wearing a revealing dress? Humans tend to blame others for their misfortunes, because they wish to live in a predictable world and protect themselves from feeling personally threatened. The idea behind is to tell ourselves that if we take care of ourselves, things will work out reasonably well and our world will be safe. Another woman can’t accept the fact that she escaped being a rape victim by sheer luck and she has no control on the external threat. Similarly, heterosexuals can’t accept that they are so because of sheer luck, and they could easily be homosexuals. There is still no concrete evidence that nature or nurture turns a person into a homosexual.

As we say in case of women equality, that we need men to come forward and change the thinking of other men, women alone can’t fight for equality. We need to take a similar stance for LGBTs. Heterosexuals need to come forward and embrace the cause of LGBTs equality. All that LGBTs are looking for is social acceptance. Why not give it to them?

3.   Organizations role

A decade back, I was working in Intel. One day my boss asked me to check LGBT policies as she needed to find a solution to a small issue. Stunned, I asked – “Which policies?” I had never read an organization’s LGBT policies in my career. Amused at my cluelessness, she gave me the intranet site name.

I was impressed with the site. Intel as usual had dealt with a difficult topic humanely, sensitively, openly and constructively. The introduction of the site was written by one of the heads of chip design division, a lesbian lady. She narrated her story of coming out, the stigma and social rejection she faced in her life, and what heterosexuals need to do the make LGBTs feel part of the organization. There were other similar mind-blowing stories. Additionally, a lot of reading material, policies, and guidance notes were available on the site to educate the employees.

Think would a customer refuse to purchase an Intel laptop because a division headed by a lesbian developed the processing speed. Our response would be – “Who cares, we want fast machines”. Exactly, we shouldn’t be concerned!

Closing thoughts

Indian Government and politicians need to move out of the bedroom of consenting adults. The Indian police are unable to manage and solve rape cases, and now it wishes to deal with the whole LGBT population as criminals. Hitler and Stalin ordered the death of millions to cleanse the population. Is the stance of government to treat LGBTs as criminals any better? Intolerance and disrespect are the main reasons for anger, hatred, and violence in the world. Heterosexuals show intolerance and disrespect every day to LGBTs. Let us collectively weave them in the social fabric of our lives and culture.

2014 Business Predictions Based On Bollywood Movies

In the age of big data, data mining, social media, market studies and customer feedback, it may sound surreal to analyse business trends from Bollywood movies. Strange as it may seem, Bollywood movies provide a wealth of information on cultural change, latest fads, and customer tastes. Agree, the movies aren’t intellectually stimulating or sensible; most of them are over the top but let us not be scornful about the hyperbole and read the real picture. Tell me what you make out this analysis.

1.      Women Rule

The male bastion crumbled this year;  in most of the movies the actress portrayed a strong character, frequently superior than the actor. In Ramleela, the heroine was a gun wielding female don’s daughter capable of pulling the trigger on betrayal. In Yeh Jiwani Hai Diwani, the female character, a nerd, beat the male character in academics. In Ashiqui 2, the female protagonist, a singer outperforms the male protagonist. Leading ladies are taking centre stage, they are no longer willing to play second fiddle and be decorative while the hero steals the show.

In business parlance, do not ignore the female customer or the female employees. Indian women are making the buying decisions, therefore ensure that the advertising pitch appeals to them and the sales process is women centric.

Additionally, after the changes in sexual harassment act and the companies act, women are gearing for a stronger role in corporate world. The Companies Act requires at least one woman to be on the board, hence develop the top talent. The sexual harassment act has empowered women and cases are making headlines. Change the work culture to ensure equality, educate staff on sexual harassment, and form legal recourse systems. Insure senior staff from sexual harassment claims and do a background check to determine propensity for sexual harassment.

2.      Think Local

Top actors and actresses made a beeline for roles with stories in rural villages and small towns. A few years back they would have turned up their noses on a project that wasn’t with a foreign country backdrop. Most of the blockbuster’s set in small towns – Chennai Express, Ramleela, Gori Tere Pyaar Mein, Ranjhana, Phata Poster Nikla Hero, etc. – had tremendous box office success.

The Indian directors’ cultural understanding of customers is excellent. The trend shows Indian customers awe for foreign brands and products is reducing. The customers want products Indianized to their taste. The burger and pizza sales give ample evidence. Over 50% of the revenues of multinational fast food chains are coming from vegetarian products. For instance, McDonald’s highest grosser, Aloo (Potato) Tikki Burger recipe was made in India.

Customize products to cater to small town customers rather than the metros to get higher turnovers. In local markets, value for money concept works and not fancy brand names.

Astoundingly, employees working in metros are moving to small towns for better work-life balance. The craze for big cities, fast life is disappearing due to high cost of living, traffic and infrastructure problems, and superficial social relationships.

3.      Complete India Story

Northern India and Southern India directors and stories intersected this year. Within India, state borders are reducing in meaning. For instance, in Chennai Express the hero is from Delhi, the heroine is from Chennai. In Gori Teri Pyaar Mein, the male protagonist is from Bangalore and female protagonist is from Delhi. Bollywood is no longer targeting just North Indian customers; they are making headway in South India. A few Hindi movies were remakes of South Indian movies . Astonishingly, South Indian directors are making Hindi movies.

In the last decade, Indians are crossing inter-state borders frequently. Caste, region, and religion differences are diminishing. Business needs to rethink the marketing strategy. Products made for North Indian customers may do well in South India and vis-a-versa. Tastes are changing and acceptability levels for different products are improving. For instance, previously consumer durable major market was in North India. However, the latest survey shows the top states are– Punjab, Kerala, Haryana, Karnataka and Tamil Naidu.

4.      Focus on Gen-Y

Sweet and nice, stereotypical and rehash doesn’t sell with Gen-Y. Unique, controversial, adventurous, and nonconformist sails through. In Ranjhana, the female protagonist organizes the death of a childhood admirer to avenge the death of her adult lover. In Gori Tere Pyaar Mein, the heroine is a social activist, older than the hero, working in a remote village. In Lunchbox, the male character is a 50-year-old man falling in love with a married woman he has never seen. In Krissh 3, super heroes and villains, half human-half animal battle it out. Sporting legends biopic (Bhaag Mikka Bhaag)  and historical political drama (Madras Café) entered the arena. The conventional isn’t making its mark.

Indian Gen Y have information of international products on the tips of their fingers. Secondly, their tastes are similar across country. Previously, there was a vast difference in tastes of the younger generation in metros and smaller towns due to limited information. Now Google Translate has removed those barriers.

Hence, business sector needs to invest in research and innovation, an area they haven’t focused on earlier. The products must be of international quality, fresh and new, at local prices. The business that has the courage to differentiate, leave traditional thinking behind will get massive returns. Businesses centering on adventure sports, exclusive hobbies, social entrepreneurship, video games, and technology apps are expected to do well.

Moreover, organizations to attract and retain Gen Y need to transform the bureaucratic and hierarchical culture. Build a culture on openness, transparency, creativity, risk taking, and empowerment.

 5.      Foray Globally

The top grosser of the year – Dhoom 3 did good business in the international market. Now the Indian movies have rap music with Hindi lyrics, use latest technology (Krissh 3), and have glitzy action. Indian award shows have built Bollywood brand abroad. A few Indian actors and directors have gained international repute.

According to a McKinsey report, 30% of the revenues of top 100 companies in India is coming from international business. Indian companies are either taking over foreign companies or establishing their own in other countries. Hence, time has come to venture abroad keeping in mind the international tastes. Don’t sell the Indian product in its standard form. Customize it according to the international tastes by using their knowledge and technology.

Closing Thoughts

Risk managers’ check out the business strategy and plans for 2014. If the products pipeline, advertisements, sales processes, customer interactions, research and development, and talent management, isn’t considering the above-mentioned aspects, there might be some risks. Lastly, be adventurous and try out new approaches.

Wishing all my readers a very happy and prosperous new year.

Happy Diwali

Wishing all my readers a joyful and

prosperous Diwali. 

Best wishes, 

Sonia