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Alternative Strategies - A year away from the City - August

The Unknown

As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don’t know we don’t know.

From ‘Pieces of Intelligence: The Existential Poetry of Donald H. Rumsfeld’

Patrick HealyI have discussed the value of good data in the context of my encounter with the occasionally lethal Irukandji [March 2010 article]. The related point to which Mr Rumsfeld alludes above is that we cannot always know the risks to which we are exposed.

One of my hobbies is rock climbing.  You might think that this is not the most obvious hobby for a risk manager but I believe that you would be wrong. 
At the moment we are in Yosemite and I have just spent a tiring but very satisfying day climbing large lumps of local granite.

As a sport, climbing addresses both of the first two categories mentioned by Mr Rumsfeld and attempts to address the third.

Like business there are known knowns in the field of climbing.  Known knowns are probably better described as outcomes rather than risks. The largest known known in rock climbing is that gravity pulls you downward and that falling long distances onto hard surfaces is very, very bad for you.

This broad category of known known is analogous in corporate risk management to the possibility of your business failing.  Analysing the things that might cause your business to fail is when risk management starts to become more useful.  There are some basic controls in place in all enterprises that expect to last more than a few days; in financial businesses these tend to be things such as not automatically lending to anyone who asks or investing on the basis of discussions with random people on the Tube.  In climbing the basic controls relate to training and the use of equipment.

Photograph by Lucy Reeve.

In terms of known knowns therefore the main risks are that your equipment will fail or you will use it wrongly and that this will lead to the undesirable outcome of plunging horribly to your death. If you climb mountains for recreation then, you will try to learn how to use your equipment correctly and ensure that it is in good condition and sufficient for your needs on the climbs you are attempting.  Today I had a harness, two 60 foot ropes and a selection of clips, nuts, wires, belay devices, carabiners and a large number of other items of climbing equipment, many with names that are exotic (Gri-Gri’s) or just silly (daisychains). I have climbed indoors on climbing walls and outdoors in a variety of locations over a period of years and have paced the hazard level of my climbing with my experience and training.

Known unknowns in climbing include such things as the knowledge and experience of the person you are climbing with, the likely weather conditions and the fact that climbs vary in difficulty.  Today I was climbing with a qualified mountain guide, the weather forecast was good and known to be predictable in the area and the climbs had all been graded in one of the many rating systems for rock climbing.

The grading systems attempt to briefly summarise in a grade the likely difficulty and danger of a given climb.  For example, one of the climbs I did today was 5.10b under the American system (not coincidentally known as the Yosemite Decimal System).  I know that this is broadly equivalent to 6a in the French System, which seems to be the most widely used, and around 5b under the slightly meaner UK system.  As a side comment it is also equivalent to VI+ under the UIAA system, Viic on the Saxon system, 18 on the Ewbank scale, 6- under both the Finnish and Norwegian systems and VI on the Brazilian rankings.

I had to look these ones up.

In any case, 6a is a level that I am quite comfortable climbing and have climbed many times before and and a climb graded at around this level should not be beyond my skill, strength or stamina.

There are many known unknowns amongst financial service industry risks.  For example in operational risk you might have to deal with whether a key employee is poached or in credit risk you may worry about which major counterparty could fail.  In risk management you try to gather as much information as is useful in addressing these risks and implement controls that will reduce the likelihood of them occurring or at least mitigate the outcome if they do occur.

Photograph by Lucy Reeve.

Unknown unknowns are, by definition, unknown. A certain amount of humility is required around unknown unknowns and a risk manager has to acknowledge to his Board that he will not always be able to foresee and quantify the risks to which the business is exposed.  The best a risk manager, and a business, can hope for is that the preparations made for known risks will also be useful in the prevention and mitigation of unknown ones.

Unknown unknowns also manifest themselves in rock climbing.  Today’s main climb was a multi-pitch route up a 400 foot rock face.  Multi pitch means that as your ropes are unlikely to be long enough to for the full route you stop at various points to pull up the ropes before beginning the next section.  On each section one climber will lead, i.e. start climbing up the face putting holds for the rope as he goes, and the other will belay, i.e. keep a fixed rope so that the leading climber is secure and can only fall back as far as his last hold. The most dangerous points are the transitions, when climbers switch from belaying to climbing or vice versa. As a belayer you have to undo the ropes that secure you to your belaying anchor and tie on to the leading rope.  It was while at this point on a narrow ledge about 150 feet off the ground that an unknown unknown manifested itself, in the form of a large squirrel that had, without my noticing it, crawled into my rucksack to steal my sandwiches. When I picked up my bag it leapt out in surprise.  I leapt too.

Fortunately my preparation for the normal hazards of climbing had readied me and I had secured myself to the leading rope before untying the anchor. My flight was quite brief and I was soon on my way up.

I would therefore suggest that rock climbing is an ideal hobby for a risk manager in that it relies on skills that a good risk manager should have - foresight, thoroughness and calmness.  It should be said that other skills useful in becoming a good climber; teamwork, intelligence, nerve and flexibility, will also be helpful in any kind of business role.

Photograph by Lucy Reeve.

Patrick Healy was the Group Head of Risk Reporting for Man Group plc
© Patrick Healy

 

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