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Sunday 22 April 2018

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VIEW: On risk, judgement and personality type

Written by George Clark, chairman, Institute of Operational Risk
2017-01-30

I read with interest an article by Institute for Fiscal Studies director, Paul Johnson in The Times this month, in which he referred to the essay by philosopher Isaiah Berlin, 'The Hedgehog and the Fox'. The basic premise is that people can be divided into two groups where foxes draw ideas and inspiration from multiple sources and are comfortable with ambiguity and a wide range of inputs; and hedgehogs see the world through a single lens and try to make sense of it by fitting events into this view or paradigm. Johnson was using the essay to draw parallels between Bank of England chief economist, Andrew Haldane’s recent comments on economists, and foxes.

I would liken hedgehogs to the rules based, policy driven and tick box risk practitioners of old. It’s a comfortable place for risk managers and business leaders to be. The world can be seen through a simple ‘compliance and enforcement’ model. However as the world has become more complex then the need for flexibility and greater competency has never been greater.

Risk managers who exhibit the fox personality type, and can understand, interpret and forecast events within the context of their environment, preventing rather than catching, seem more able to manage risk and to support the achievement of business objectives. Their data sources include hard evidence but also that soft intelligence gathering from internal network contacts and their knowledge of the business. They seem to be able and willing to make more informed judgement. In believing in their skill and data perhaps they can also take more risk.

I like to think that sound risk management is grounded in informed judgement. As Haldane pointed out, those judgements rely heavily on data. In the operational risk world that data is often flawed or missing. This is the point at which we need to exercise expert judgement.

There is absolutely a place for both personality types in the world of risk as no individual judgement is ever perfect. We still need a different perspective to challenge and no one can really live completely unbound by rules


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