Douglas W. Hubbard - The Failure of Risk Management: Why Its Broken and How to Fix It

1. Chapter 2
2. Chapter 4
3. Chapter 5
4. Chapter 6
5. Chapter 7
6. Chapter 8
7. Chapter 11
8. Chapter 12
9. Chapter 13

1. Chapter 2
2. Chapter 4
3. Chapter 5
4. Chapter 6
5. Chapter 7
6. Chapter 8
7. Chapter 10
8. Chapter 11
9. Chapter 12
10. Chapter 13

Second Edition

DOUGLAS W. HUBBARD

This second edition first published 2020

2020 by Douglas W. Hubbard. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

Edition History

John Wiley & Sons, Inc. (1e, 2009)

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Library of Congress Cataloging-in-Publication Data

Names: Hubbard, Douglas W., 1962 author.

Title: The failure of risk management : why it's broken and how to fix it / Douglas W. Hubbard.

Description: Second edition. | Hoboken, New Jersey : Wiley, 2020. | Includes index.

Identifiers: LCCN 2019051494 (print) | LCCN 2019051495 (ebook) | ISBN 9781119522034 (hardback) | ISBN 9781119522027 (adobe pdf) | ISBN 9781119522041 (epub)

Subjects: LCSH: Risk management.

Classification: LCC HD61 .H76 2020 (print) | LCC HD61 (ebook) | DDC 658.15/5dc23

LC record available at https://lccn.loc.gov/2019051494

LC ebook record available at https://lccn.loc.gov/2019051495

Cover Design: Wiley

Cover Image: RomoloTavani/iStock.com

I dedicate this book to my entire support staff: my wife, Janet, and our children, Evan, Madeleine, and Steven, and to the Armed Forces of the United States of America.

Mr. Hubbard's career in quantitatively based management consulting began in 1988 with Coopers & Lybrand. He founded Hubbard Decision Research in 1999 and he developed the applied information economics (AIE) method to solve complex, risky decisions. He has used AIE in many fields, including cybersecurity, aerospace, biotech, environmental policy, commercial real estate, tech startups, entertainment, and military logistics, to name a few. His AIE methodology has received critical praise from respected research firms such as Gartner, Forrester, and others.

He is the author of the following books (all published with Wiley between 2007 and 2016):

• How to Measure Anything: Finding the Value of Intangibles in Business (one of the all-time, best-selling books in business math)
• The Failure of Risk Management: Why It's Broken and How to Fix It
• Pulse: The New Science of Harnessing Internet Buzz to Track Threats and Opportunities
• How to Measure Anything in Cybersecurity Risk (coauthored with Richard Seiersen)

His books have sold over 140,000 copies in eight languages and are used as textbooks in dozens of university courses including at the graduate level. Two of his books are required reading for the Society of Actuaries exam prep, and he is the only author with more than one on the list. In addition to his books, Mr. Hubbard has published articles in Nature, The American Statistician, IBM Journal of R&D, CIO Magazine, and more.

A lot has happened in the decade since the first edition of this book, both in the world of risk management and in my own work. Since then, I've written two more editions of my first book, How to Measure Anything: Finding the Value of Intangibles in Business as well as writing Pulse: The New Science of Harnessing Internet Buzz to Track Threats and Opportunities and How to Measure Anything in Cybersecurity Risk. By 2017 this book (along with How to Measure Anything) was placed on the required reading list for the Society of Actuaries Exam Prep.

Regarding the broader topic of risk management, there were several more examples of risk management gone wrong since the first edition. The Fukushima Daiichi nuclear power plant disaster in Japan, the Deepwater Horizon oil spill in the Gulf of Mexico, and multiple large cyberattacks that compromised hundreds of millions of personal records. But I won't dwell on these anecdotes or the events that occurred prior to the first edition. This book should be just as relevant after the next big natural disaster, major product safety recall, or catastrophic industrial accident. Better yet, I hope readers see this book as a resource they need before those events occur. Risk management that simply reacts to yesterday's news is not risk management at all.

I addressed risk in my first book, How to Measure Anything: Finding the Value of Intangibles in Business. Risk struck me as one of those items that is consistently perceived as an intangible by management. True, risk is intangible in one sense. A risk that something could occurthe probability of some future eventis not tangible in the same way as progress on a construction project or the output of a power plant. But it is every bit as measurable. Two entire chapters in the first book focused just on the measurement of uncertainty and risks.