What do you mean by the term Risk? The language of, and confusion around, Risk.

Risk! Engineers Talk Governance
Episode 6, Season 1

In this episode of Risk! Engineers Talk Governance, due diligence engineers Gaye Francis and Richard Robinson discuss the language of risk, why confusion reigns in organisations, and why they avoid using the term of risk altogether.

Transcript

Megan (Producer) (00:02):

In this episode of Risk! Engineers Talk Governance, due diligence engineers Richard Robinson and Gaye Francis talk about the language of risk and why it's so imperative for people within an organisation to be on the same page when using risk management terms. We hope you enjoy the episode. If you do, please subscribe on your favourite podcast platform and also check out the other episodes within this season of the podcast. Also, give us a rating and if you are after further information, all the details for Gaye and Richard are within the description. Enjoy the episode.

Gaye Francis (00:46):

Hi Richard, and welcome to another podcast session.

Richard Robinson (00:48):

Hello Gaye. Good to be here.

Gaye Francis (00:51):

So today we're gonna talk about the language of risk and some of the confusion that it has and some of the double meanings, I guess, and that you need to be careful when you are using (the word) within your organisation. 'cause it can have different meanings for different people.

Richard Robinson (01:06):

It's a little bit more than just double (meaning)!

Gaye Francis (01:09):

<laugh>. A few more meanings then.

Richard Robinson (01:12):

It depends who you're talking to.

Gaye Francis (01:13):

That's right. So we actually have a section in our book, in the Due Diligence Engineer Chapter 2 of our R2A text, and we're gonna go through that today and then go through what, what the different definitions are, how people use it, and then how we get around that confusion and the sort of language that we've tried to move to, especially in line with the WHS and Environmental legislation that now requires so far as reasonably practical.

Richard Robinson (01:42):

What do you mean: How do we get around it? What we basically do is avoid the term risk as far as possible.

Gaye Francis (01:47):

Well that was our conclusion. Yes. But <laugh>, we might work up to that.

Richard Robinson (01:53):

Well, first of all, I was just gonna go through the five meanings that we understand risk to have as a term. And then when you see it in the term risk management and you see the way different people use it and the different ideas that they have when they're using it, well you can see how these two things get so mixed up and scrambled.

(02:10):

Now the first one is, and this is the way sort of more or less historically as it happens, is risk as a noun. Now, a long, long time ago, I was trained as a highly protected risk engineer by Factory Mutual in the US and when they talk about highly protected risk, they talk about the site itself, the insured site, the risk site, that's a noun, right. They started that terminology in 1840 and so Zacharia Allen, I can take you through the history if you're particularly interested, but possibly not!

(02:38):

But the insurance world has always used risk as a noun because they're basically talking about the insured site. That's what they mean. What happened basically when risk management started and all the engineers turned up with sort of subsequent enthusiasm, was they started treating the word risk as an adjective to describe the risk associated with the hazard. So it's a property of the hazard rather than the thing in itself. And that's where you get that simultaneous appreciation of likelihood and consequence.

(03:07):

Then if you wind up in court, which is, and there's some examples in our book from a (New Zealand) court to that effect. See, once you wind up in court the fact is the thing has happened. So when the court uses the term risk after the event, they're talking about the likelihood of that particular outcome. So they're just using it as a likelihood after the event. But when the lawyers are writing before the event, as in the WHS legislation, they're talking about the risk, you know, the risk to health and safety. What actually are they talking about? Because they're not talking about the way in which lawyers talk about it after the event.

Gaye Francis (03:39):

No, they probably refer to it more as the consequence likelihood, a simultaneous appreciation of.

Richard Robinson (03:44):

Well, certainly when you read Chris Maxwell's review of the 2004 OHS Act, he seems to have that confusion even though he specifically wanted to put in the common law view, which is the hindsight driven view, which basically says that everybody's entitled to an equal level of precaution, which is actually derived from the likelihood side only for particular nasty big things that happen. So there's a bit of confusion there.

(04:10):

Then you get risk as a concept involving future uncertainty, which is just sort of part of the human condition. I mean, what's gonna happen next? I mean, you know, apparently we're not gonna have the Commonwealth Games in Melbourne anymore. We just recently discovered, well that's future uncertainty. And we sort of know a few people involved in that project. And one wonders how, well, we don't know what's gonna happen, do we!?

(04:31):

And then there's the last one, which is the finance people are using, which confuses people even more and which the risk management standard, despite their profession about... they talk about risk and reward, but then they talk about negative risk and positive risk, which is kind of more confusing 'cause the reward side is the positive risk and the negative side would be what we would normally have termed pure risk.

(04:53):

Now, it possibly gets even more muddly when you actually talk about the term risk management, which everybody uses with enthusiasm because it depends on who you're talking to as to what they mean by it. Now we're basically sort of rattling... this is from a fellow called Dr. Ron Bromley who is one of my old bosses from yonks ago, when I used to work for M and M Protection Consultants. M and M Protection Consultants was the lost control division of Marsh McLennan, as one of the Americans put it to us when he jumped off the plane from America and said to the assemble of Australians, two thirds of the world is covered by water, the other third is covered by Marsh McLennan. <laugh> That had about the same effect on you as it had on us! <laugh> But Americans are sometimes enthusiastic in this regard. Anyway, he basically just said, look, if you wanna know what somebody means by it, just look at who they're and what they do with it.

(05:44):

So a safety manager, and that's sort of the person who sort of started to talk about risk management in the first instance, they were talking about maximising safety budgets, getting the greatest resources to the best works they can to minimise loss. That's what they in mind.

(05:58):

When you're talking about a risk manager, which was the next term that sort of popped up from the safety manager, well, they're out to maximise corporate profits.

Gaye Francis (06:07):

Yeah, there was more a corporate organisational approach.

Richard Robinson (06:12):

The problem is they probably didn't really understand the contribution of the sort of the physical management of risk to results in the way that the safety manager did because they were always fretting out what could go wrong.

(06:23):

Then you had the line manager who started using the term risk management and they wanted to maximise production objectives and maximize profits.

(06:30):

Then the legal advisor and lawyers, they sort of hopped in and started using the term risk management. What they meant by that they're out to manage potential conflicts and win court cases.

Gaye Francis (06:39):

So it became almost a liability management tool, didn't it?

Richard Robinson (06:42):

Correct. Disputes equals prosperity too. And sign off is difficult.

Gaye Francis (06:47):

For the law profession. Yes. <laugh>

Richard Robinson (06:48):

For the legal lawyers. That's right. But then the asset managers got a hold of the idea. That's one of the reasons why the risk management standard mutated from being strictly a downside risk asset management process and went upside downside. Well, they wanted to maximise investment returns and minimise downside risks. They wanted to maximize upside, minimize downside. Which gives rise to your frustration....

Gaye Francis (07:12):

The chance between zero harm and risk appetite. Because no one has an appetite for safety. Downside safety outcomes.

Richard Robinson (07:21):

Killing and maiming. Nobody's got an appetite for that. But if you're talking about upside downside, yes, you need a risk appetite statement.

(07:29):

Then you've got the underwriters, well they want to maximise underwriting profits, but that means they have a narrow approach. And I think what's happened is their approach was so narrow, basically they're being ignored now. I think they actually sort of dipped outta that one.

(07:39):

Then you've got the insurance brokers, well, they're out to get more clients and maximize profits, but affordable services only. I remember one broker telling me something along the lines, now look Richard, in order to get the business, we promised the earth and having got the business we conduct "a realistic reassessment of the insured's needs". <laugh>

Gaye Francis (08:00):

Not quite the way to do business. Or get the best... well gets them the best results!

Richard Robinson (08:04):

Gets the best result for them.

(08:06):

Then you've got board members, well, they're out to maximise profits, but they're also out to minimise personal liability. And when you look at the WHS legislation, well the big guys are still as we still seem to have the corporate veil working for them, but the small guys don't, from what we've seen.

(08:22):

And then you've got auditors. Well, their job's to confirm that reality matches history - the two things, history and reality align or what people are saying is what's actually occured are actually aligning. But this is a historical analysis. The past doesn't reflect the future. So if they're saying something about what happened the last five years, who's gonna say what happened in the last five years is gonna be reflective of the next five years. It just doesn't happen.

Gaye Francis (08:45):

No. So with all of those different meanings (of risk) to start with, and then the way that different people use it and organisations use it, then there is a huge confusion out there. So, you know, we often get the requests: Can you come and do some risk management for us or a risk assessment for us? And it's sort of like: Okay, what are you trying to achieve with this? And until you actually sit down and look through what they're trying to achieve and who's asking the question, it depends on sort of the process that we use.

Richard Robinson (09:14):

The call we got this morning about resilience. So people are using resilience both as a pre-emptive and a post-emptive strike, aren't they? They haven't quite decided, have they?

Gaye Francis (09:23):

No. But it all goes towards their risk management.

Richard Robinson (09:27):

The management of risk.

Gaye Francis (09:28):

Yes, of future uncertainty. So, like we were talking before, Richard and I try not to use the term risk and and risk management. So we often do issues workshops. And because the legislation, especially in safety terms, ask for all reasonable practical precautions so far as is reasonable practical, we often call them SFAIRP reviews.

Richard Robinson (09:51):

Correct. Well, that's the only way to do it. Because that is your legal duty.

Gaye Francis (09:54):

And it cuts through all of the knots associated with risk and people's preconcep... Can you help me out with the word? <laugh>

Richard Robinson (10:04):

Preconceptions.

Gaye Francis (10:05):

Thank you. Tongue twisted today!

(10:07):

...on what risk is. Because often they come with that and if they go to a workshop they're expecting for, typically in engineering cases, the consequence and the likelihood to be characterised.

Richard Robinson (10:21):

I'll have to try some more words on you. <laugh>. Transmogrification. How do you feel about that? <laugh>

Gaye Francis (10:26):

That's a very impressive word!

Richard Robinson (10:28):

<laugh>. Well, as you can see, our view about all this is that when you sort of have somebody who starts talking risk management, you've really gotta have a look at how they use the term if you really wanna understand what they're about. And our general experience is if you're sitting around the board meeting and somebody starts using the word risk management and they've all come from different career paths to get there, you basically have instant confusion unless somebody actually gets up and sorts it out.

Gaye Francis (10:54):

So I think for us, absolutely look at at risk as future uncertainty, but it really focus on the controls that you need to put in place to manage it. And then it really doesn't matter from which aspect you come for it, from what position you have or, you know, take you have on it, if you're focusing on what the controls are going forward, it should manage all of those things. It should be a liability management tool. It should improve safety. It should be able to give you good returns on investment. If you do all of that, if you're focusing on the precaution based approach.

Richard Robinson (11:31):

Well, it's a little bit more than that. It's actually, you know, 2000 years of western philosophy. But for some reason we keep forgetting the whole point is your fate isn't fixed. You can change it if you want to.

Gaye Francis (11:42):

That's true. <laugh> That was very deep on a podcast.

(11:48):

So what we're saying is just be careful with the language of risk. Understand who you're talking to. And some of these buzzwords are being used, as Richard said, resilience seems to be the new one, but it is a form of risk management, you're just trying to get the best out of your assets, and it's being required to deliver it. So just be careful around buzzwords and what you actually mean and dig deep enough to get that understanding.

(12:17):

So thank you for joining us again. We hope you found it interesting. We look forward to presenting another podcast in the near future.