Best Practices in Planning and Performance Management: Radically Rethinking Management for a Volatile World, Third Edition

Chapter 9. Risk Management: Place Your Bets

	The past seldom obliges by revealing to us when wildness will break out in the future.
	--Peter L. Bernstein

Uncertainty, volatility, and unpredictability have come to characterize the environment in which most organizations now operate. Although the luxury of developing detailed long-term plans predicated on a stable view of the future has long gone, such practices remain at the heart of most performance management processes. The global economic crisis of 2008-2009 has served as a powerful wake-up call: Managers on one hand are beginning to understand the futility of trying to plan out future performance in great detail, and on the other are beginning to understand the value of explicitly addressing risk and uncertainty in all aspects of the performance management process. In a Harvard Business Review discussion of the lessons to be learned from the economic crisis, Michael Hofmann, the chief risk officer for Koch Industries, offered this advice: "First, don't believe your own predictions. Whatever you consider most likely probably will not occur. You have to be ready to question every—and I mean every—significant assumption."^[81] This has significant implications for the way most organizations plan, budget, and forecast—it challenges the value of developing a very detailed but singular view of the future and then using that view as the basis for setting performance targets, allocating resources, measuring performance, and determining ...