Pendulum risk management. Humans have certain tendencies when it comes to remembering details of events when time has had a chance to distort the memory of those events. Some call it bias; some call it optimism or pessimism. How do these distortions impact our capacity to conduct risk management?
Ever since I got involved in risk management, I noticed that stakeholders sometimes have a distorted view of certain risks that they carry with them from project to project. This can be based on their lack of risk knowledge, but it is most often due to the fact that they have experienced something similar in the past. I have attempted to define this in the past, and it was not until about six years ago that I finally gave this my own term: the pendulum effect. In the following article, I will attempt to explain what and how the pendulum effect impacts our capacity to do risk management with a view of trying to minimize or at least be aware of this factor when it comes to our pendulum risk management work.
First, what is a pendulum? Pendulums have been used in science to show how impact produces synergies that will propel the impacted body in predictable or unpredictable ways. “This is usually in the form of a weight hung from a point so as to swing freely back and forth under the action of gravity” (Pendulum, Merriam-Webster dictionary). The best example of a pendulum often sits in an office to relieve stress. Look around; you can probably spot one nearby. They have also been used by magicians to mesmerize their audience, which is another effect that we will discuss.
It is actually by looking at one of these in action that I was surprised to realize that we look at risks in much the same way, and movement through time and memory after the impact modifies our perception when it comes to potential future impacts.
The best way to explain the pendulum effect is to show it in action. In January 1998, my daughter turned two years old, and we were waiting for my parents to come from Montreal to Toronto for her birthday. They could not make it that year not because of the tragic clown we had hired but because one of the worst ice storms that ever hit Montreal and part of the Eastern section of the US and Canada devastated everyone leaving more than 59 people dead and millions of damages in infrastructure. I remember the military being called in to get people to leave their homes and take shelter. Electrical power supply towers looked as if they had been stepped on by some angry giant, leaving piles of rubble and a tangled mess of wires in fields all across the province. My own father, who had worked for more than 30 years for Hydro-Quebec (Quebec’s electricity generator and provider), could hardly keep up with the needs of his generator and wood-burning stove while ensuring the roof would not cave in from the weight of the ice. He was actually asked to go back to work for a short period to assist in the effort to bring the supply chain back up and running.
So, this is the start of our pendulum effect. The ice storm acts as the impact and sends our pendulum all the way to the opposite side. It does this so hard that it ends up all the way to the left. That year more companies than ever bought Uninterruptible Power Source (UPS) systems, made sure they had working backup generators, and put down on paper business resumption plans. Most of these became so sought after that a small economy around these processes flourished.
Now here is the effect of time and memory. Over the next few years, the sales of UPS and other equipment started to slow down as the pendulum slowly inched its way back to the center or neutral position. The more time passes, the more the ice storm is just something that people remember but do not plan for. People are not feeling that storm any longer and start forgetting its impact.
About five years or so after the event, there are very few accommodations for ice storms left on any company risk register or plan. As for the mesmerizing effect, people who did not live it or who did do not remember it as being “that bad.” Give us another storm, and it will send the pendulum back up, and our efforts, as well as the risk, become “fresh” again. Now that I have come to think about it, I could have called my theory the freshness of risk.
I have seen this pendulum effect over and over again in a number of ways and areas of pendulum risk management. You do not have to think long to highlight a few, such as Japan’s tsunami of 2011, which impacted the Fukushima nuclear installation, the Three-Mile highland, the Chernobyl nuclear disaster in Russia… You will say that I tend to apply my theory to the unknown-unknowns, but I can say that it could be applicable to a cyber-attack, fraud, stock market fluctuations…
There you are, the pendulum effect and how we, as risk professionals, need to reconcile the impact of time and memory now with potential future risks and their impacts so they are not just memories. Please don’t be shy and let me know if my pendulum effect does have value, but more importantly, learn to recognize it in your organization so that you don’t get caught in its path.
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