Risk fears endanger enterprise

The public’s appetite for risk has diminished progressively in recent years.
Our first inclination is to protect our children from dangers that we, their
parents, used to regard as part of the fun of growing up; news of the terrible
loss of six British soldiers in Afghanistan grabs headlines almost exactly 90
years after 20,000 died in a single day; and our lives are festooned with
warning labels such as ‘May contain nuts’ on a packet of peanuts.

In many ways, it is quite proper that improvements in the quality of life
should make us more demanding and less accepting of intolerable dangers. But the
truth is that our attitudes to risk can also be very contradictory. Our
tolerance for life-threatening failure in areas such as public transport is
virtually zero and yet we are seemingly immune to the daily death toll on the
roads. The minutest traces of salmonella cause a million bars of chocolate to be
cleared from our shelves, though the role of confectionary in contributing to
childhood obesity is indulged.

In recognition of the fact that the public holds such contradictory attitudes
towards risk, a new body has been established by the RSA to examine the issue.
The Royal Society for the encouragement of Arts, Manufactures and Commerce has
established the RSA Risk Commission under the chairmanship of Sir Paul Judge.
The commission will look at risk and its “contextualisation” in five key areas:
childhood, transport, engineering, medicine and security. It will hold
conferences and publish reports over the course of the next three years with a
view to commenting on emerging risk issues and seeking to influence public
policy and opinion.

As FDs increasingly take on roles involving the management of business risk
rather than simply its minimisation, the work of the commission may well be of
interest. The RSA came to prominence in the business community in the 1990s with
its influential ‘Tomorrow’s Company’ initiative, which brought business leaders
together to re-examine the sources of sustainable business success.

The right balance

A speech last year by Sir Paul Judge provided a suitable backdrop for the
setting up of the Risk Commission. In it, Judge said that many people had “a
distorted sense of personal risk”, which was having “a damaging effect on the
government of our society and on our personal attitudes to risk and enterprise”.

To make his point, Judge listed a number of statistical probabilities for
different incidents:

– Chance of any one person dying in the next year: about 1%;

– Chance of tossing a coin six times and it comes up heads each time:
slightly more than that;

– Proportion of UK deaths caused by ‘internal medical’ problems – ie,
disease: 96.9%;

– Chance of dying in the next year from external causes: 0.03% (1% x 3.1%) –
ie, one in 3,000;

– Chance of dying on the railways in 2003: one in 10 million;

– Chance of dying while travelling by air: one in 1 million;

– Likelihood of a child being run over in any year: about one in 250,000;

– Chance of dying in a year while climbing steps and stairs: about one in
75,000;

– Chance of dying from accidental poisoning: about one in 64,000;

– Chance of dying in a car: one in 40,000;

– Chance of dying on a motorcycle: one in 2,500 – or 4,000 times more likely
than dying on a train.

“This analysis shows that humans are not particularly good at estimating
risk,” said Judge. “Research shows that we have a tendency to underestimate risk
over which we have some control, and to overrate risk over which we have no
control.

“Public policy has to balance the national statistics with the personal
tragedy of loss of life or of injury and apply the available resources in the
best way possible. This is, however, increasingly difficult with the distortion
of public understanding of risk,” he said. “It is clear that something is
seriously wrong when teachers feel unable to take children on school trips for
fear of being sued. The Financial Services Authority, whose origins go back to
Robert Maxwell’s activities, is now seen as hugely inhibiting efficient business
by perfectly respectable companies, but failing to stop any real criminals. The
railways are investing £20m to prevent each likely rail death whereas there are
many more cost-effective road safety schemes that are unfunded. The Dangerous
Dogs Act and the Handgun Act were both classic examples of when politicians said
‘something must be done’.

“Every decision that we make from the most trivial to the most important is
attended by some sort of evaluation of the costs and the benefits, and the
likelihood of a successful outcome. To accept any risk is to accept a possible
loss. Risk-taking is inherently failure-prone. Otherwise, it would be called
‘sure-thing-taking’.”

Judge then asked, why do we take risks? “The key reason,” he suggested, “is
to expand our level of experience. While there is an increased chance of there
being a problem, there is also a probability of finding something new and
innovative. Risk-taking increases the probability that one will find something
of value despite the search cost. Over the course of human history, every major
advance has occurred because of the temerity on the part of human beings in
trying to understand more and to do something that has not been tried. An
understanding of risk is vital if our population is to remain enterprising in
both business and other walks of life.”

To learn more about the RSA Risk Commission or to find out about
contributing to its work, see
https://www.theRSA.org or email
[email protected]