By Rory Kilburn Big data is getting all the press these days and analytics are becoming the accepted way to look into the future. However, the use of analytics assumes that the future will unfold on a linear path from the past. We know from hard experience that this is almost never true. It may be true in the immediate future (30 to 90 days), but once you stretch into looking out a year or more, big data is less useful for forecasting. The key focus for risk managers is that they not try and predict the future; rather, it is to make sense of the data.
Polynesians, on their long voyages, used wayfinders to make sense of the data they had. The wayfinders brought the recognition of patterns of waves, the meaning of clouds, and the knowledge of birds and fish to point at the presence of land, shoals, or safe waters. It is a matter of knowing the environment, and what small indicators mean in the larger eco-system. They made sense of the data that was gathered during the voyage.
Making sense of data by converting it into usable information, and then taking it even further into discoverable knowledge, is what separates companies into leaders and also-rans.
Taking this back to a business context, it means taking cues from events in the marketplace, and using big data and the cues to understand what it means to your company.
By using advanced analytical tools and modeling software, and incorporating scenario planning into risk management, organizations are able to forecast how risk events will propagate through the company. The tools give you insight into the impact of an event on your operations and those of your clients. Risk management planning then becomes more than single event mitigation. Instead, it becomes readiness to address the cascading consequences of a single event, and therefore setting plans in motion to create a system that is resilient in the face of multiple shocks.
Planning for a future based on a linear extrapolation is hindsight. It makes you an armchair quarterback. Planning for a future based on multiple cascading failures needs insight.
RiskLogik lets you make sense of the patterns emerging from your business environment, and gives you the insight necessary to build a resilient system.
(Rory Kilburn is Vice President – Risk & Resilience Solutions, RiskLogik)