Summary of Douglas W. Hubbard's The Failure of Risk Management

By IRB Media

Please note: This is a companion version & not the original book. Book Preview:

#1 The first edition of this book came out on the tail end of the Great Recession in 2008 and 2009. Since then, several major events have resulted in extraordinary losses both financially and in terms of human health and safety.

#2 The widespread inability to make the sometimes-difficult distinction between methods that work and those that don't means that ineffectual methods are likely to spread. Once certain methods are adopted, institutional inertia cemented them in place.

#3 In 2017, a new variation of the Boeing 737 MAX series passenger aircraft was introduced: the 737 MAX 8. Within twelve months of the initial roll out, well over one hundred MAX 8s were in service. In 2018 and 2019, two crashes with the MAX 8, totaling 339 fatalities, showed that a particular category of failure was still possible in air travel.

#4 The common mode failure hierarchy could be taken even further. A single software problem may cause problems on multiple 737 crashes, but the risk management method itself could be flawed. A weak risk management approach is the biggest risk in an organization.

• Language: English
• Publisher: IRB Media
• Release date: Jun 13, 2022
• ISBN: 9798822526563

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Insights on Douglas W. Hubbard's The Failure of Risk Management

Contents

Insights from Chapter 1

Insights from Chapter 2

Insights from Chapter 3

Insights from Chapter 1

#1

The first edition of this book came out on the tail end of the Great Recession in 2008 and 2009. Since then, several major events have resulted in extraordinary losses both financially and in terms of human health and safety.

#2

The widespread inability to make the sometimes-difficult distinction between methods that work and those that don't means that ineffectual methods are likely to spread. Once certain methods are adopted, institutional inertia cemented them in place.

#3

In 2017, a new variation of the Boeing 737 MAX series passenger aircraft was introduced: the 737 MAX 8. Within twelve months of the initial roll out, well over one hundred MAX 8s were in service. In 2018 and 2019, two crashes with the MAX 8, totaling 339 fatalities, showed that a particular category of failure was still possible in air travel.

#4

The common mode failure hierarchy could be taken even further. A single software problem may cause problems on multiple 737 crashes, but the risk management method itself could be flawed. A weak risk management approach is the biggest risk in an organization.

#5

The term risk is used too narrowly. It is used to describe the potential of something bad happening, when in reality, risk is much more than that. Risk is used to describe the potential of something bad happening, when in reality, risk is much more than that.

#6

The second definition is more to the point, but the first describes a way to quantify a risk. First, we determine a probability that the undesirable event will occur. Then, we need to determine the magnitude of the loss from this event in terms of financial losses, lives lost, and so on.

#7

Risk management is the planning, organization, coordination, control, and direction of resources toward defined objectives. It is a part of any management program, and it is important to recognize that risk is inherent in business.

#8

Risk management is the process of analyzing and prioritizing risks, followed by the coordinated and economical application of resources to reduce, monitor, and control the probability and impact of unfortunate events.

#9

The risk analysis process is the detailed examination of the components of risk, including the evaluation of the probabilities of various events and their ultimate consequences. It is the basis for risk management.

#10

Risk analysis is a subset of risk management, and those are subsets of decision analysis, which is a quantitative treatment of the decision-making process. If risk analysis is broken, it is the first and most fundamental common mode failure of risk management.

#11

When I say that risk management has failed, I am not necessarily referring to individual anecdotes of unfortunate things happening. It is possible, after all, that organizations in which a disaster hasn’t occurred are just lucky and they may have been doing nothing substantially different from organizations in which disasters have occurred.

#12

The effectiveness of risk management is rarely measured. The biggest failure of risk management is that there is no experimentally verifiable evidence that the methods used improve on the assessment and mitigation of risks.

#13

The first objective of this book is to reach a wide audience of managers and analysts. I want to convince them to make a radical change in direction from the methods they are most likely using now.

#14

This final part of the book will introduce methods for addressing each of the sources of error in risk management. We will build on the basic straw man model introduced