Cognitive Risk

Description

Cognitive Risk is a book about the least understood but most pervasive risk to mankind – human decision-making. Cognitive risks are subconscious and unconscious influence factors on human decision-making: heuristics and biases. To understand the scope of cognitive risk, we look at case studies, corporate and organizational failure, and the science that explains why we systemically make errors in judgment and repeat the same errors. The book takes a multidisciplinary and pedestrian stroll through behavioral science with a light touch, using stories to explain why we consistently make cognitive errors that not only increase risks but also simultaneously fail to recognize these errors in ourselves or our organizations. This science has deep roots in organizational behavior, psychology, human factors, cognitive science, and behavioral science all influenced by classic philosophers and enabled through advanced analytics and artificial intelligence. The point of the book is simple. Humans persist with bounded rationality, but as the speed of information, data, money, and life in general accelerates, we will need the right tools to not only keep pace but to survive and thrive. In light of all these factors that complicate risk, the book offers a foundational solution. A cognitive risk framework for enterprise risk management and cyber security. There are five pillars in a cognitive risk framework with five levels of maturity, yet there is no universally prescribed maturity level. It is more a journey of different paths. Each organization will pursue its own path, but the goal is the same – to minimize the errors that could have been avoided. We explain why risks are hard to discuss and why we systematically ignore the aggregation of these risks hidden in collective decision-making in an organization. The cognitive risk framework is a framework designed to explore the two most complex risks organizations face: uncertainty and decision-making under uncertainty. The first pillar is cognitive governance, which is a structured approach for institutionalizing rational decision-making across the enterprise. Each pillar is complimentary and builds on the next in a succession of continuous learning. There is no endpoint because the pillars evolve with technology. Enterprise risk is a team effort in risk intelligence grounded in a framework for good decision-making. We close with a call to become designers of risk solutions enabled by the right technology and nurtured by collaboration. We hope you enjoy the book with this context. Cover Half Title Series Page Title Page Copyright Page Table of Contents About the Authors Introduction Chapter 1 Reimagining the organization: Homo periculum (Human risk) Confusion in enterprise risk practice Cognitive map: the unintentional consequences of a global ERM framework Decoding the failure in audit and confusion in enterprise risk management Notes Chapter 2 Complexity in risk and risk perceptions The science of risk versus subjectively defined risks Waste in subjectively defined risk practice Cognition – blind spots in risk discovery Notes Chapter 3 A matrix of risk governance – organizational behavior Enterprise risk governance in review Enterprise-wide risk management The emergence of enterprise-wide risk management Structural impediments to advancements in corporate governance and enterprise-wide risk management Matrix of board governance models Collective Governing boards Working boards Advisory boards Managing boards/executive boards Carver board governance model Cortex board governance model Consensus board governance model Competency board governance model Notes Chapter 4 Incorporating human risk factors into organizational performance Case study – Yahoo and Marissa Mayer Yahoo! board Cognitive map: decision-making, governance, and leadership Decoding the failure at Yahoo and board governance Notes Chapter 5 How emotions mislead decision-makers Choice Theory London “Whale” trader The findings of the Whale trade loss A failure to raise red flags or escalate risks What changed at JPMorgan Chase? Cognitive map of the JPMorgan Chase Whale trade Lessons for industry Before you make that big decision – a template for decision hygiene Constructive dissent Promoting constructive conflict Conflict resolution should be formally organized to make clear how to do it well: Ground rules Decision audits Notes Chapter 6 Cognitive readiness – risk-solution designers Notes Chapter 7 The human element Human element in the workplace Cognitive map: John Malone, the consummate deal-maker Decoding the miscalculation by Jeff Zucker at CNN Notes Chapter 8 Cognitive risk governance: Advanced ERM and cybersecurity Cognitive governance Simple example Intentional control design A fundamental approach to reduce risk Achieving resiliency The science of cognitive control Cybersecurity and enterprise risk management – asymmetric risk Human factors and socio-technical risk Cognitive risk mitigation – bias and noise: the fifth pillar Notes Additional References