Product Description

An essential guide to the calibrated risk analysis approach

The Failure of Risk Management takes a close look at misused and misapplied basic analysis methods and shows how some of the most popular "risk management" methods are no better than astrology! Using examples from the 2008 credit crisis, natural disasters, outsourcing to China, engineering disasters, and more, Hubbard reveals critical flaws in risk management methods–and shows how all of these problems can be fixed. The solutions involve combinations of scientifically proven and frequently used methods from nuclear power, exploratory oil, and other areas of business and government. Finally, Hubbard explains how new forms of collaboration across all industries and government can improve risk management in every field.

Douglas W. Hubbard (Glen Ellyn, IL) is the inventor of Applied Information Economics (AIE) and the author of Wiley's How to Measure Anything: Finding the Value of Intangibles in Business (978-0-470-11012-6), the #1 bestseller in business math on Amazon. He has applied innovative risk assessment and risk management methods in government and corporations since 1994.

"Doug Hubbard, a recognized expert among experts in the field of risk management, covers the entire spectrum of risk management in this invaluable guide. There are specific value-added take aways in each chapter that are sure to enrich all readers including IT, business management, students, and academics alike"
—Peter Julian, former chief-information officer of the New York Metro Transit Authority. President of Alliance Group consulting

"In his trademark style, Doug asks the tough questions on risk management. A must-read not only for analysts, but also for the executive who is making critical business decisions."
—Jim Franklin, VP Enterprise Performance Management and General Manager, Crystal Ball Global Business Unit, Oracle Corporation.

Product Details

• Amazon Sales Rank: #27789 in Books
• Published on: 2009-04-27
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 304 pages

Features

• ISBN13: 9780470387955
• Condition: NEW
• Notes: Brand New from Publisher. No Remainder Mark.
• Click here to view our Condition Guide and Shipping Prices

From the Inside Flap
The 2008 credit crisis, terrorism, Katrina, computer hackers, and air travel disasters all have something in common-the methods used to assess and manage these risks are fundamentally flawed. If risks cannot be properly evaluated, risk management itself becomes the biggest risk. The Failure of Risk Management shows you how to identify and fix these hidden problems in risk management.

Ineffective risk management methods, often touted as "best practices," are passed from company to company like a bad virus with a long incubation period: there are no early indicators of ill effects until it's too late and catastrophe strikes. Exploring why risk management fails—the failure to measure and validate methods as a whole or in part; the use of components known not to work; and not using components that are known to work—The Failure of Risk Management shows you how to measure the performance of risk management in a meaningful way, identify where risk management is broken, and fix it.

Respected expert and bestselling author Douglas Hubbard-creator of the critically praised Applied Information Economics (AIE)—uses real-world examples to reveal the serious problems in our current approaches to risk analysis. Hubbard skillfully illustrates how to use a calibrated risk analyses approach, and the many benefits that go along with it, along with checklists and practice examples to get you started.

One of the first resources to apply risk management across all industries, The Failure of Risk Management provides you with the tools you need to hit the ground running with radically better risk management solutions.

Here, you'll discover:

• The diversity of approaches to assess and mitigate risks
• Why many influential methods-both qualitative and quantitative don't work
• Why we shouldn't always trust assessments based on "experience" alone
• The fallacies that stop you from adopting better risk management methods
• How those who develop models of risks justify (in error) excluding the biggest risks
• Adding empirical science to risk management

From the Back Cover
The Failure of Risk Management explains which risk analysis methods work, which don't, and how to tell the difference. The Failure of Risk Management discusses topics relevant to the management of any risk including: Financial Risks, Natural Disasters, Industrial Accidents, Product Safety, Technology Risks, Project Failures, Engineering Disasters, Pandemic Viruses, Computer Security, Fraud, Loss of Reputation, Litigation

Companion Web site www.howtofixriskmgt.com

YOUR BIGGEST RISK IS THAT YOUR RISK MANAGEMENT METHODS PROBABLY DON'T WORK.

THE FAILURE OF RISK MANAGEMENT

"Doug Hubbard, a recognized expert among experts in the field of risk management, covers the entire spectrum of risk management in this invaluable guide. There are specific value-added take aways in each chapter that are sure to enrich all readers including IT, business management, students, and academic alike.”

—Peter Julian, former chief information officer of the New York Metro Transit Authority, President of The Alliance Group Consulting

"In his, trademark style, Doug asks the tough questions on risk management. A must-read not only for analysts, but also for the executive who is making critical business decisions."

—Jim Franklin, VP Enterprise Performance Management and General Manager, Crystal Ball Global Business Unit, Oracle Corporation

"Doug Hubbard's book should be required reading for managers and practitioners responsible for mitigating risk. If corporations and government are to regain the public trust, effective and broad-based risk management must be as natural as breathing."

—Ron Miller, FEMA CIO 2001-2002; former senior advisor, White House Homeland Security Transition Planning Office; Chairman, TeamRonMiller.com

"A seminal and timely book. The Failure of Risk Management challenges conventional wisdom and provides priceless support to decision makers navigating their company in these turbulent times."

—Dr. John F.A. Spangenberg, CEO, SeaQuation (an ING spin-off)

"Doug Hubbard really knows his stuff. He is not just an author who has learned enough about a current popular topic to write a book, but instead is a talented consultant in this area, who has learned how to write, and write well. He displays a deep real-world understanding that ranges from mathematics to everyday human behavior, a trait that is all too rare in this age of specialization."

—Prof. Sam Savage, Fellow, Judge Business School, Cambridge University; Consulting Professor, Stanford University School of Engineering

About the Author
Douglas W. Hubbard is the inventor of Applied Information Economics (AIE). He is an internationally recognized expert in the field of measuring intangibles, risks, and value, especially in IT value, and is a popular speaker at numerous conferences. He has written articles for InformationWeek, CIO Enterprise, and DBMS magazine. His AIE method has been applied to dozens of large Fortune 500 IT investments, military logistics, venture capital, aerospace, and environmental issues. Doug is the author of How to Measure Anything: Finding the Value of Intangibles in Business (Wiley).

Customer Reviews

An Important Addition To A Risk Manager's Library
How do we know if our risk management methods are working? Would we notice if they were not working? What are the consequences if they are not working? These are the three basic questions that Douglas Hubbard asks in his book The Failure of Risk Management.

In this book Mr. Hubbard lays out the basics of risk management and explains why many risk management methods are worse than useless. He also provides some ideas and first steps to fix the problem.

Here's a brief walk though 'The Failure of Risk Management':

Part I introduces the history of risk management and the problems with modern risk management methods. Independent events, for instance, are often times not independent at all. This common-mode failure is unaccounted for by many managers, yet can be devastating in an emergency.

Part II of the book goes in depth with some of the problems and failures of risk management, and to me was the most interesting part of the book. Chapter 4 is called The "Four Horseman" of Risk Management, and describes the differences between what the author considers the four main classes of risk managers. The four classes are actuaries, "war quants," economists, and management consultants. Each group has distinctly different methods and areas of expertise, as well as different levels of validation.

Chapter 5 is about how risk should be defined, and why different people may actually be talking about different things when they discuss volatility and risk. Chapter 6 breaks down why humans are not good at subjective methods (which lays the ground work for later chapters introducing quantitative methods). There are a few "calibration" tests available for you to see how overconfident you are in your decision making. These are pretty interesting, and even after reading about overconfidence I still did poorly on them.

Chapters 7, 8, and 9 talk about problems with subjective scoring methods, problems with describing one-off events, and the problems with some quantitative models. The author talks about "black swans," as described by Nassim Nicholas Taleb, and how they relate to modeling. Many times people believe that events can't be modeled, but the author believes this is not so.

The last section of the book, Part III, gives some ideas on how to fix risk management. Adding empiricism is a big start, as well as calibration of subjective human inputs. Many companies build and use models, but then they don't actually bother to see how well the things have performed in the past. I will leave the rest of the solutions for you to read in the book.

Recommendation:

First off, the author says this book is geared towards all types of risk management, and all types of industries, and I think this is true. The author uses a wide variety of examples from airplane engine failures to volcano eruptions. But I still feel like this book is more geared towards enterprise risk management, and less towards the already quant heavy fields such as actuarial science or credit risk management. But it was an interesting read nonetheless.

It seems like in the past 20 years there have been several so-called "once-in-a-lifetime events," such as the floods of Hurricane Katrina or any of the financial crisis, including 1987, 1998, 2000, or 2008. I wish I had the money to buy this book for every person who ever said "no one saw that coming."

I think this is a great book for anyone who deals with the potential for risk, loss, or damage - no matter if it is financial, personal, or physical. When the stakes are high we should be careful relying on a risk matrix developed by a management consultant, and Douglas Hubbard will tell you why. If you work in risk management, or if you have influence on the operational strategy of some organization, then this book is a must read.

Best read I've had on the topic
Hubbard sets out with a big goal and meets it. He gives the most complete explanation of how certain flaws evolved in risk management. While Hubbard's historical analysis is not as detailed as Against the Gods: The Remarkable Story of Risk, the Failure of Risk Management is much more in depth about the details of the flaws about models use for all aspects of risk management. The next time someone is pushing a new, unproven, risk management method down our throats in our organization, this is the book I'll push back with. Show me the evidence it works, or don't waste my time. Bravo.

Great tool for "hard" and "soft" risk analysis
Some risk analysis methods work. Some don't. Hubbard explains how to tell the difference. The good news is that for every "placebo" method that gives only comfort but not real benefits, there is one that really does work. The bad news is that the most effective methods are the least widely used and the least effective methods are the most widely used.

I like the survey he includes about Monte Carlos. He makes a solid case that, without training, most experts will be statistically overconfident when assessing subjective odds. But since most Monte Carlo models have at least some subjective estimates, this means that most will understate risk. I haven't heard anyone point out that problem much less a way to fix it.

Correcting problems with Monte Carlo models is important because, once these issues are addressed, it is one of the most powerful tools available to the Chief Risk Officer. Hubbard provides several free spreadsheet downloads on his book's companion website that help the reader understand what might be complex calculatins.

This book is the best risk management investment I've made.