Volatility: Enemy #1...

Organizations implement Operational Risk solutions to lower "volatility" in earnings growth and return on capital. The focus on volatility is because no institution likes to see peaks and valleys in their earnings or their return on capital.

A steady and consistent growth curve without "Volatility" is the goal by many steadfast organizations.

Contrary to the goal of minimized "volatility" there are also those who feed off of the chaos and the large swings between these highs and lows in the marketplace and with specific companies in vital sectors of the financial economy. Will a Blueprint for Regulatory Reform be the answer?

As a hedge fund investor, can you explain what the strategy is for your investment fund? Do you know what your money is being invested in?

Does your hedge fund manager provide transparency on calculating your return on funds invested? What was the reason you invested in alternative investments to begin with?

Carrying this analogy to the operational processes within your organization, the goal is to keep the processes running smoothly. When people or systems deviate from the agreed upon "Rule Sets" then change ensues along with the volatility of the performance measures.

Errors, Omissions and systemic "glitches" are the catalysts to volatility that creates fear, uncertainty and doubt.

Do you understand the Math? When the process gets to this stage and people don't trust the rules anymore, you are on the brink of a failure and impending loss, in dollars or peoples lives.

Operational Risk Management is a discipline that is emerging in corporate ranks because it has already proven that it saves lives. The regulators and inspector generals are going to demand it.

The "Rule Sets" of playing business in the financial, health care and energy sectors are not the only ones being subjected to this increased scrutiny and renewed focus on OPS Risk.

Now the Defense Industrial Base (DIB) and the Defense Department are under increased oversight at the highest echelons of the Pentagon as a result of a failure in Operational Risk Management.

"Lessons learned are being discussed in the ranks of the U.S. Treasury Department and the Department of War all relating to the failure of people, processes, systems and or external events. Operational Risk is all around us and now ready for prime time focus in terms of strategy execution, implementation and measurement."

Whether you utilize Operational Risk Management (ORM) in the Defense Industrial Base or in the Financial Services sector, it's important to revisit what it is NOT:

Operational Risk is Not:

• About avoiding risk
• A safety only program
• Limited to complex-high risk evolutions
• A program -- but a process
• Only for on-duty
• Just for your boss
• Just a planning tool
• Automatic
• Static
• Difficult
• Someone else’s job
• A well kept secret
• A fail-safe process
• A bunch of checklists
• Just a bullet in a briefing guide
• “TQL”
• Going away

The goal of Risk Management is not to eliminate risk, but to manage risk so the mission can be accomplished with minimum impact. We manage risk to operate, not avoid risk as a means to prevent loss...

Innovation: Truth in Data Provenance...

For years mathematicians and computer scientists have written about the trustworthiness of “Data Provenance”.

Relying on the integrity of data collection, transport and of course the source of data is a real science.  Our modern day zeros and ones span all aspects of our lives and Operational Risk Management (ORM) professionals have encountered the questions surrounding trust and the process of decision making long before the invention of computing machines.

At the root of decision making with integrity the source of data is questioned.  The reliability and history of previous data from the source.  As the data was transported from Point A to Point B was there any possibility that the data was altered, modified or corrupted.

Couriers and the use of a "Hawala" type system have been used by traders and terrorists for hundreds of years.

"Truth in Data Provenance" is the question mark that enables trust decisions.  This is why modern day cryptography is at the center of so many arguments and debates, when it comes to the topic of trusted information.  Yet hundreds of years ago, long before telecom and ICT was invented, the trustworthiness of data provenance was a vital factor.  The use of transposition ciphers were in use by the ancient Greeks.

So what?  In 2026 what does the truth in data provenance have to do with our business commerce, our transportation, our banking, even our abilities as governments to maintain our defense against attack?

The topic is vast and deep and worth exploration at the top level of human decision-making.  Yes, it is vital that our computing machines have high-assurance data integrity, in order for our global systems to operate day-to-day.

Yet what impact does trusted information have with humans in an environment of work and daily collaboration?  How does truth in data provenance, affect our decision making and the environments we work in?

In a report by LRN, the subject of trust in the work environment as a motivator has become more apparent:

Another fascinating result of the study had to do with two squishy-sounding characteristics of a company: character and trust. Companies deemed by employees to have both strong character and inspired trust performed almost four times better, using the metrics mentioned earlier, than those that had other positive cultural attributes, such as collaboration and celebrating others. (This applied to all three types of companies, though, naturally, culture and trust were much more prevalent in the self-governing ones) What’s more, “high trust” organizations were 11 times as likely to be called more innovative than their competitors. Trust, the How Report suggests, is more important than virtually any other characteristic.

How organizations address the trustworthiness of data provenance is still a new frontier in this day and age.  The use of new sensors, sophisticated analysis of "Big Data" by computer algorithms (AI) and the pace at which new data is generated by the "Internet of Things" (IOT) makes this a significant area of focus for our current executives and enlightened organizational leadership.

Why?

But what does that really mean? How does one measure the absence or presence of something as abstract as trust? The How survey defines it as “a catalyst that enhances performance, binds people together, and shapes the way people relate to each other.” High trust groups encourage risk-taking, which in turn is what is necessary for true innovation to occur. When innovation fails, it’s because companies don’t put enough faith in employees to let them take risks. The industries with the highest amount of trust were “computers/electronics,” followed by “software/Internet.” Coming in last? Government.

At the most fundamental level, the culture you are operating in has all to do with the trust that exists or is absent.

It has all to do with the trustworthiness of data provenance.  Leadership in any organization, must see the relevance between trust and innovation.  Between innovation and risk-taking. 

Your future and your culture depends on it...

Virtual Truth: False Information Risk...

How does "False Information" impact the risk to your organization? 

Decisions based upon faulty or inaccurate information is the root of many of the systemic failures of catastrophic history. The Titanic, Challenger Shuttle and Three Mile Island nuclear incident can all be attributed to the integrity of vital information.

Fast forward to the financial crisis and the past decades of consumer credit expansion strategies. What data have you been collecting from US consumers or clients about their personal identifiable information attributes?

The Information Age has drawn us into a more dangerous business operating environment as these digital assets have become another commodity to be sold in an international market place, to the highest bidder. Are you ready when the federal "Suits" or the local LEO's (Law Enforcement Officer) knock on your door in pursuit of the truth:

The Fair Credit Reporting Act (FCRA) spells out rights for victims of identity theft, as well as responsibilities for businesses. Identity theft victims are entitled to ask businesses for a copy of transaction records — such as applications for credit — relating to the theft of their identity. Indeed, victims can authorize law enforcement officers to get the records or ask that the business send a copy of the records directly to a law enforcement officer. The businesses covered by the law must provide copies of these records, free of charge, within 30 days of receiving the request for them in writing. This means that the law enforcement officials who ask for these records in writing may get them from your business without a subpoena, as long as they have the victim’s authorization.

The financial integrity of your future as a business and as a consumer is at stake. Christopher Burns brings this to light in a dramatic fashion in his book; Deadly Decisions:

"First, it is often extremely difficult to validate, corroborate, or verify the information we are dealing with, except by comparing it to the other information we are dealing with. And often the whole system is contaminated by misunderstanding, bad data and false assumptions that are hard to spot. The truth test rarely works. And second, the real issue of truth is not whether you or I should believe this or that, it is what we believe together. The truth that matters is group truth, and where we get into trouble is when a whole organization--a company, a community, a nation--starts to act on information that has been gathered from many sources and processed by many people but has come to contain significant elements that are false.”

Trusted Information is at the core of current global trading, business transactions and the fabric of our own personal identities. False information and knowledge is what creates operational risk factors that can change a whole company or the integrity of a whole nation.

Systems that comprise vast databases of "so called" trusted information are at our fingertips being utilized to make coherent and effective decisions. Yet what may be the more catastrophic Operational Risk beyond the simple stealing of information is the potential opportunity for the destruction of vital information.

The vulnerability of our institutions and the critical infrastructure of the United States economy is ever more at risk of a systemic loss. While our stolen data will continue to be sold to the highest bidder on a global platform for trading, the 4GW "Non-State" actors will change their modus operandi. This is a given.

Trusted Information systems that have certified integrity and the oversight controls to ensure the highest level of virtual truth is the "Holy Grail.”

The degree to which these same systems include false knowledge is our most complex problem for business and government in the next decade…

Trust Decisions: Future Risk Architecture...

Leadership within the enterprise requires "Trust Decisions" that they can count on.  Operational Risk Officers have a fiduciary duty to provide top executives with the confidence that the data and information they provide is trusted.

So how do you assist any corporate leader, who has the responsibility and accountability to the Board of Directors to make informed and sound decisions?  The answer is, that it depends on how willing the CxO's in the enterprise are to engineer a "Trust Decision" model and framework for the business.

The truth is, most executive managers have their own way of doing this.  The process that the CEO makes decisions, is quite different from how the CFO makes decisions and the COO may have a documented and tested way to make their decisions.  The point is, that major "Trust Decisions" for the good and welfare of the enterprise are being made by people who are each doing it differently.  These human decision makers are relying on a number of ways to get to the final answer.  The decisions from leadership are not as trusted and reliable as they could be.

As an Operational Risk executive charged with making timely and correct decisions you have no choice but to have the tools and the trusted sources to enhance your situational awareness.  The safety and security of the facility, information or peoples lives are at stake.  That is why you test and continually improve the process so your analytics dashboard, intelligence feeds and data sensors are all operating with integrity and in real-time.

You are relying on information that changes by the nanosecond and a system designed to provide decision support.  Intelligence-led investigations or reacting to the latest incident requires systems designed and tested to support human "Trust Decisions."  Now back to the executive leadership and their process for decision-making.  What is it?  How does the CEO make the final decisions for the future wealth of the company and it's stakeholders?  Are they trustworthy?

Unless you have seen the "Trust Decision" process and trusted data framework engineered for your enterprise, then probably not.  Think about all of the leadership level projects and how they turned out.  How did executive leadership decide to buy that other company or merge with their favorite supplier?  What process did they use to ensure all of the due diligence data was correct?  Why are the sources of data trusted?

We have the opportunity to improve and to arrive at a point where we make "Trust Decisions" our priority and a prerequisite.  After all, our employees, customers, shareholders and even mankind deserve it.  The challenge begins.

Whenever you encounter your next major business decision with your CxO, ask them how they arrived at the decision.  Ask them to explain the process they used and the sources of trusted data they relied on.  Ask them why they think the architecture of the decision at hand, is the most sound and trusted decision that can be made with the time available.

You are now well on your way to better understanding the power and the future risk architecture of TrustDecisions.

Liaison Mission: When Will You Introduce Them?

As a current Chief Executive Officer or Commander across some branch or agency, who have you named as a key "Liaison?"  Who is this vital person that you have asked to be your voice, your thinking and your representative to a partner, collaborator or strategic ally?

In Chris Fussell's book One Mission:  How Leaders Build A Team of Teams, the Task Force Liaison is described as follows:

"We clearly share a determined adversary--one that, unlike our organizations, is networked and thus moves with incredible speed. In the Task Force, we are now trying to forge a new type of model based on relationships among individuals and organizations like yours--and we'd like to be more closely connected with your organization. Winning will come from leveraging our mutual strengths, sharing insights and nuanced understanding of the problems and respecting one another's positions.

To help our partnership, we would like to give you one of our best people as a liaison. I expect our liaison to be an asset to you, sharing anything we're doing, providing our most timely intelligence, and seeking out ways that we can help your organization accomplish its goals."

This idea is not a new strategy per se.  Similar derivations of the concept have been utilized for hundreds if not thousands of years.  So why is this so important now, to the current state of global and corporate affairs?

The first reason is that operating at the speed of "iMessaging" social media, will create chasms of misunderstanding.  The simple fact is that information being collected, interpreted and disseminated in your digital-based platforms will most likely have gaps.  The messaging and communications will be hard to decipher by others, who don't know all of the acronyms as just one example.

This is where an embedded "Liaison Officer" or representative can bridge the cultures and the lines of direct messaging.  This is how the speed of the combined network is increased in it's ability to pivot, to adapt and to solve problems, faster and with higher quality than the competition.

The second reason is that a key mission of the nominated Liaison is to establish, maintain and perpetuate trusted relationships.  Otherwise, how can the leaders of your two organizations gain any momentum, in the quality and the speed of the partnership that is desired as a relevant outcome?

Now think about your own organization.  Where do you have a blind spot?  What other entity, team, business unit or agency is now seen as a barrier or competitor?  Are you both after the same customer, the same target or the same outcome?  Is a partnership in place now, to even embed or exchange Liaison personnel?

Believe us when we say that your adversary has already done the same.  They are working together across boundaries to share intelligence, to exchange vital data and to work in tandem to perpetuate their cause, their ideology or their campaign.  They have their own trusted Liaison's working each day, to move faster than you are and to achieve new gains in their mission, while you are worried about the unknowns.

Who is it in your organization that you feel that you can't live without?  The one or two leaders that you rely on each day.  The personality that exhibits the way that "Adam Grant" describes a "Giver" or "Matcher," in the way they operate across the team and within the company.  This may be the best person for you to let go of and to be your next "Liaison" to that vital partner, agency or even country.

Looking across the landscape of America, you will find examples of this idea and methodology that is working.  You will find places across the globe where it is in total failure.  Yet how can you raise the odds, that the likelihood of the person you choose to be embedded with another organization, will indeed succeed?

As a current Team Leader, CEO or Commander, it means you will have to go a step farther.  It means that you will have to take this person side-by-side in many cases, into the same office, SCIF, SOC, NOC or conference room to explain it face-to-face.  Sitting across the table from this partnered organizations top executive, you say it:

"I have carefully selected "Jill or Jack" to be our Liaison with your unit or department.  It is something we know to be of great value to the ongoing mission we both face, to address the (problem-set).

 Please know that she/he knows me very well and how I think and what our organizations real capabilities are.  We will miss them, yet want her/him to work alongside your leaders to learn as fast as possible about your greatest hurdles and problems.  It is only then, that we envision a chance for our respective teams to move faster with the most effective joint solutions, to obtain and synchronize our advantage." 

This few minutes face-to-face may make all the difference on the potential for a successful and trusted relationship.  As you stand up and leave your Liaison with their new assigned organization, remember this.

Your Liaison's ability to succeed, will only be as good as the job you have done in preparing them for the assignment.  Think about all the months or years you have worked to shape their character, to instill the ethics and integrity into their daily decisions.  How many problems did you let them solve on their own?

We look forward to hearing the stories about your "Liaison's" and their respective missions to achieve decision advantage and to reach those lofty outcomes you seek...

Trust Decisions: The Wealth of Our Cognitive and Digital Transactions...

As you embark on your journey out the door today, you will be required to make dozens of "Trust Decisions".  You and the digital smart machines and the numerous human and digital trust transactions that you will encounter is quite fundamental.  Or is it?

As you walk into your office building the surveillance cameras are watching you and recording your behavior.  The iPhone in your pocket is transmitting your unique signals to digital data sensors embedded in the lobby.  As you press the button on the elevator to go up to your office, you are making another affirmative decision to trust.

When you step off at your floor and approach the door to your office, you might utilize your small "Radio Frequency Identity (RFID) device to swipe a small square mounted on the wall.  You hear the deadbolt unlock and you are now granted access to your office space to start your workday.

Now as you approach your corner office, you glance at the top of the screen of your iPhone to see if you are connected automatically to the corporate wireless network and the VPN.  When you were granted access to the office, the corporate computer network knew you were now present in the office and you have been automatically granted access for your role on numerous software applications on your computing devices.

Start your day at work and now the number of digital trust encounters has just begun.  The "Trust Decisions" that you and your digital devices will be making, could reach into the hundreds after a long 8 hour day.  

Yet there are five principles that emerged in May of 2015 from Oxford professor and author Jeffrey Ritter in his book "Achieving Digital Trust" we should consider now:

• Every transaction creating wealth first requires an affirmative decision to trust.
• Building trust creates new wealth.
• Sustaining trust creates recurring wealth.
• Achieving trust superior to your competition achieves market dominance.
• Leadership rises (or falls) based on trust (or the absence of trust).

Think about a day in the life of your entire organization and the number of digital trust transactions that have nothing to do with actual monetary currency transfers.  The wealth that is being described here on first glance may be thought of in terms of dollars or yuan or property, yet what about the wealth of human trust?

 A plentiful amount or an abundance of anything.  How tangible is the decision to trust the computing machine before you, or the person sitting across the desk who is a key supplier or that new client half way around the world just sending you a text message?

You see, we walk to work and communicate everyday, making hundreds of trust decisions.  Our corporate computing devices are making tens of thousands or millions of transactions of trust each hour.  The rules, information and calculations are known, because they are being measured.  Jeffrey Ritter says it this way:

Take a moment and think about each of these with respect to what you do in your business or in your job. How does the organization acquire wealth? Where does new wealth originate? How are customers retained? What provokes them to keep coming back and paying for your goods or services? Why does the leader in your market succeed? If you are not the market leader, why not? How is the loyalty of your team maintained? 

 The future is clear and becoming more revealing to us each day.  Digital trust, security and privacy of your organization and our societies are being defined before us in plain sight.  Can you see it?

Making "Trust Decisions" today at work and as you navigate home for the evening will be more apparent.  A heightened understanding of digital trust and how you engage with these transactions each waking hour may assist you in creating new wealth.  Improving the trust you have with AI computing machines and others at home or work, can make all the difference in life.

Where do you work and live?  Washington, DC.  Denver.  London.  Dublin.  Zurich.  Sydney.  It doesn't matter anymore because we are all connected by the Internet.  The opportunity for the societies of our planet to utilize "Information & Communication Technology" (ICT) to produce greater wealth is still before us.

How will you proceed with your “Trust Decisions”?

Operational Risk: The Pursuit of Trusted Information...

Operational Risk is about Performance Management and Business Resilience. A few months ago the topic of "Compete or Die" was discussed here. Why revisit this topic?

CEO's and the Board of Directors realize the road to eliminating fear in their organization and the marketplace is through trusted information.

Being agile, ready and capable of a quick recovery is what competitiveness is all about, on the field, on stage or around the table in the Board Room.

Working towards control and protection while "Fear" builds in the back of your mind makes you stiff, depletes your energy and creates doubt. And when you are operating a business or standing on the tee of your first sudden death hole on any PGA weekend, you better have resilience.

The business equivalent to Homeland Security and Critical Infrastructure Protection is Operational Risk Management—a domain that many executives see as the most important emerging area of risk for their firms. Increasingly, failure to plan for Operational Resilience can have “bet the firm” results. 

There are numerous examples of how errors, omissions and glitches have brought down the reputations of many a Fortune 500 companies. What do they all have in common that led to their demise? A lack of economic and business resilience to remain competitive in the marketplace.

The threat of Tort Liability and the loss of reputation is top of mind these days with every major global company executive. The threat is real and increasing at a faster rate than many other real operational risks to the enterprise. Litigation from regulators, class actions and competitors has given the term Legal Risk new emphasis and meaning.

Once corporate management understands the need for a "resilience" mentality in place of a "protection" mental state, a new perspective is found. Investing in the vitality, agility and competitive capabilities of the organization sounds and is more positive.

It alleviates the fear of doom and gloom and inspires new found innovation. The future of your organizations longevity and in it's adaptability can be achieved with a new perspective. Compete or die.

Performance Management could be enabled or suppressed by the amount of power you give your leadership. Do they have the ability to make a $1M decision or $10K decisions when it comes to investing budgeted capital into their business unit growth?

Do they manage risk on a level where they are the most informed and the most knowledgeable about the business, or is the "Mother Ship" back at the home office dictating the way they spend or the way they invest?

The ability to know how to manage risk at the point of creating new information is the nexus of several disciplines and requires substantial training. Every minute that goes by with people not behaving correctly puts the enterprise at greater risk to lost performance opportunities.

All these issues can be summed up in a single concept: trusted information. Simply accessing data is no longer enough. Today's CEOs, CFOs and knowledge-workers must be able to reliably track the information they use for decisions back to the original source systems in order to ensure its timeliness, accuracy and credibility.

Over the last few decades, organizations have invested Billions of dollars in systems to collect, store and distribute information more effectively. Despite this, information users at all levels of the organization are often uncomfortable with the quality, reliability and transparency of the information they receive.

Today's organizations rarely have a "single view of the truth." Executives waste time in meetings debating whose figures are correct, rather than what to do about the company's issues.

Additionally, they worry about the AI consequences of making strategic decisions using the wrong information, directly impacting the long-term survival of the organization.

The search for trusted information is a continuous pursuit for commanders in the "Mission Ready Room" and the "Corporate Board Room".

So how do you achieve the level of assurance that's required to make the "bet the farm" risk management decisions in your enterprise?

Competition: Life Long Learning Experience…

When you were growing up in your town across the USA, they probably had all kinds of ways for you as a kid to learn about competition.

Was it the Spelling Bee?  The Debate team. The High School ball sports games, running track or swimming meets. Cheer competitions. Car racing. The neighborhood park “Art” & “Pottery” contest. The city Golf championship.

Before you headed out of your own household to universities or colleges in other states or joined up with our Armed Forces and were stationed overseas, you really thought you understood what competition was all about didn't you.

Or did you?

competition

com· pe· ti· tion ˌkäm-pə-ˈti-shən

Synonyms of competition

1: the act or process of competing

compete

com· pete kəm-ˈpēt

1: to strive consciously or unconsciously for an objective (such as position, profit, or a prize) : be in a state of rivalry

The fact that you were in competition with others for the best example of your intellect, or your strength or your speed or your accuracy or creativity would soon become more of a life question.

"Who shall I serve in my years ahead and trust to help me navigate the joys and sorrows of my life long journey?"

How will they provide me with the wisdom and the guidance to know what is the right decision to make at the right time?

Competition in life is unavoidable and you might wonder why some people “Win” on one day and not on another.  Was it luck?

Just ask anyone who has made it to a C-Suite at Headquarters, or “Hall of Fame” or other Museum of History and the people who excelled at their particular Profession, Sport or Craft or Exploration milestone.

Have you ever heard someone say in your long competitive life:  “It’s not about Winning and Losing it is about how you play the game”.

What does that really mean?  Is it about following the rules and playing with good manners or sportsmanship?

Competition is truly a life learning experience whether it played on the field, in the pool, on the mountain, on the ice rink, on the track, in the auditorium, on the stage, in the conference room or the ready room, face-to face or online, it does not really matter.

Some may say it was lots of Time and Practice.  Some may say it was a Miracle.

What shall you learn about Competition in your own life?

Some may say it was "My Destiny"...

Godspeed!