16 Aug Asset Management Decision Making Is Falling Way Behind Other Sectors in Times of Uncertainty
Posted at 9:50 in Resilience by Mark Calvert
Identifying, managing and mitigating risk is a fundamental part of effective asset management.
We’re currently in the midst of a unique (albeit sobering) time where irreversible increases in flood frequency and growing network interdependencies mean what we once did to protect our key assets is no longer enough.
In order to tackle this beast, effectively build resilience into assets and ultimately lower TCO, I believe we need to adopt a more holistic, considered and proactive approach to protecting key assets and infrastructures.
And this calls for more than the installation of water-resistant bunds, blast walls and other practical measures. It calls for a fundamental shift in mindset and a significant change in asset management decision making altogether.
Data Driven Decision Making
Today, it is generally understood that what we accepted in the past as facts are no longer a safe prediction for the future. The Committee on Climate Change’s recent climate change risk assessment makes this quite clear too, highlighting our collective infrastructural weaknesses as a nation.
We should’ve known better, but we didn’t.
Now, armed with this newfound wisdom and a reasonable dose of fear, you would expect organisations to adopt a preemptive, data-driven approach to mitigating rapidly growing and unpredictable risks.
But the research suggests otherwise.
According to research from PwC, asset managers are placing more emphasis on human judgement and intuition than concrete data, trends and risk analysis. Given risks are growing at a rate that is at least in tandem with technological advancements, neglecting concrete data is an extremely risky approach to decision making. It’s also one I believe is largely responsible for many organisations’ key assets being one surge or flood away from complete disaster.
Only 33% of respondents from the Asset Management industry regard their decisions as highly data driven – PwC Global Data and Analytics Survey: Big Decisions™
This tendency to lean on human judgement becomes particularly interesting and apparent when compared to other industries. Not only is the asset management industry the most inclined to base decisions on human judgement relative to others, but its approach is the polar opposite of the industry at the other end of the spectrum: insurance.
“We currently employ data analytics to help us understand what has happened. We’re in the process of looking to leverage data to help us better predict what will happen.” – North American Insurance Company
To me, this doesn’t make sense.
The insurance industry is predicated on accurately identifying risk. The ability to recognise trends, interpret big data and identify patterns is what allows insurers to make money, offer mutually beneficial policies and satisfy stakeholders. Precision is literally the key to success in the industry.
With this in mind, what better industry is there to mimic when protecting key assets from a wide range of growing risks and dangers?
Yet here we are, making decisions without the sober pragmatism and accuracy that concrete data and comprehensive research provide. This is not to say decision making should be driven by numbers alone. I personally know how crucial experience is to the decision making process. Instead, what I am calling for is a realignment of the two: experience needs to be used as a counterweight to data and emerging trends, and vice versa. Human intervention needs to be used to interpret and contextualise the data. Somewhere along the line the nature of this relationship seems to have been forgotten.
As it stands, the asset management industry, relative to other industries, is playing a guessing game – and I’m afraid it’s a game they will lose.
This needs to change, and quickly.
Resilience Through Eternal Improvement
This change needs to start with a learning process. You don’t necessary have to start with big data and in-depth industry reports (although this never hurts). Resilience starts with self-assessment: you need to objectively audit your organisation and map the risks. Are there inherent weaknesses in infrastructure? What impact would overheating overhead lines have on your power transmission capacity? Would flood water ingress cause business disruption and if so, how would you restore your systems?
These are the questions you need to ask yourself continuously. When risks constantly grow, you need to constantly assess your ability to cope with them. It never ends, and this is what is at the core of the Eternal Improvement approach. Following every new piece of information, reassess. After every disruptive event, restore your systems, reassess, and grow stronger.
The Resilience Map below will help you get started with this process, highlighting common risks to assets, the resilience measures required in response, and any dependencies.
The Eternal Improvement approach not only allows you to better protect key assets but, through the ongoing self-assessment process, allows you to make better sense of data altogether. Once you have a detailed knowledge of where your strengths and weaknesses lie, you can better interpret data as it relates to your organisation. You can move away from a reliance on human judgement and intuition, and start making smarter, data-driven decisions.
This post originally appeared on LinkedIn as a Pulse post.