Are You Driving Faster Than You Can See?

Norman Marks, CRMA, CPA, is a vice president for SAP and has been a chief audit executive and chief risk officer at major global corporations for more than 20 years.

 

When you drive, and assuming you are a prudent driver, you slow down when the visibility on the road ahead gets worse — because you don’t want to drive faster than you can see.

But when the visibility improves and you can see the road ahead with clarity, you will speed up.

Other factors that will affect how fast you drive include:

  • The traffic information on the radio has warned of congestion half a mile ahead.
  • The temperature gauge on your car’s dashboard indicates the engine temperature is rising.
  • There are a number of drivers around you, and one or two are driving erratically.
  • You recently had a service on your car and replaced or repaired your brakes.

In other words, when you have more information you are able to make better decisions on whether it is safe to drive faster. With that information, you can also decide to take an alternate route (to avoid the congestion) or even to take the train (because your brakes need repairs).

The information you need includes data about:

  • Current performance and trends (such as the engine temperature level or the quality of your brakes).
  • Risk information, providing insights in what you may find on the road ahead (such as congestion or an accident caused by an erratic driver).

You need both performance and risk information. Some see risk management as being how you identify and address the "big" things (like collapsed bridges) that could derail your plans. But risk management is really about how you address uncertainty about the road ahead (including potholes). As defined in the global risk management standard, risk is the effect of uncertainty on objectives (ISO 31000:2009).

When you are managing risk well, you are increasing the likelihood of a more positive outcome. You:

  • Understand what might happen, its likelihood and potential consequences.
  • Evaluate how that might affect your ability to reach your destination safely and on time.
  • Take actions to minimize the likelihood and impact of an adverse effect (such as a crash or arriving late).
  • Take actions to increase the likelihood and effect of positive effects (such as arriving earlier by changing lanes or taking the train).
  • Do all of the above with information that is:

o Timely (ready when you need it).
o Current (don’t change lanes based on a photograph of the traffic taken 15 minutes ago).
o Reliable (you know your speedometer is reasonably accurate).
o Useful (an engine warning light rather than a 10-page printout of engine temperatures).
o Available (with you in the car and not at home).

 

Some people decide on a destination and route, and commit to an arrival time, with only minimal information. They are willing to "take a chance" that their operational and financial can be relied upon (even if it is early June and the last set of reliable data is from the end of March). But they don’t consider the risks (or uncertainties) in their plans.

It is critical to integrate risk management and an understanding of relevant risks into the setting of performance goals. Otherwise, there is a high likelihood that you will have set unattainable goals, or devised a sub-optimal strategy for achieving them.

Similarly, it is critical to ensure you continue to understand and act on risks as you journey. Integrate risk management into performance management.

Otherwise, you may be driving faster than you can see.

Posted on May 6, 2012 by Norman Marks

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  1. Thank you Mr. Marks for this useful article. I really like the car driving example.

    We have a lot of real example on lack of risk information during setting the performance goals.

    I just finished reading Sony case study; I understood that the rapid change in technology was a challenge for them to compete. the internet evolution for example was like a boom in the market and with the exist of local competition and international rivals, it change the market trend suddenly which expose a market, financial, even culture risks to Sony Co.. They should keep in mind such a thing when they deciding their performance goals.

    Therefore, I consent with your article and underpinning the importance of having continues appraising for the risk information on the way.  
     

    Regards,,

  1. When you drive, assuming you’re a prudent driver, you slow down when the visibility on the road ahead gets worse—because you don’t want to drive faster than you can see.
  1.  n other words, when you have more information you are able to make better 

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