2 Big Decisions, Risk & Communication
There are two questions I’m currently pondering as we wade our way through this unprecedented moment in time. The two questions are 1- what drove our decision to act and 2- what was the evaluation and understanding of the ensuing tradeoffs. When all is said and done, we may be trading the lives of 2-20 million Americans, many of whom are seniors, for existential economic damage, perhaps ruining the lives of over 60 million Americans (~conservatively 20% of the population) as a result of the actions we are taking. I can’t even begin to do the math globally.
The two questions I am currently pondering are:
#1 what drove our decision to act? #2 what were the tradeoffs in our plan of action?
Decision #1: The Decision to Act
Let me take a step back to a time when things were normal. As leaders managing teams, business units, and companies we are constantly faced with situations where we must manage risk. Risk assessments are used in designing products with tools like the Failure Mode and Effects Analysis (FMEA) to assess the effect of potential impact and mitigation of product problems that manifest once a product is out in the field. Other risks might be regulatory in nature, safety, competitive, sourcing, or any myriad of functional risks. Leaders are presented with problems every day and we all go through our own method of assessment followed by decision & action (or inaction).
We know that each day is full of evaluation of problems & decision making. If you feel the need to react and act upon every problem presented without a risk assessment, you’ll never move forward. There are just some problems that are too great to avoid. There are some problems that are just too costly to solve for the benefit. There are some problems that have acceptable workarounds. I know that in my experience, having some formal model of evaluating risk is helpful, not only for me, but to use with my teams to help us all evaluate risk in the same way. Ultimately as CEO, I would accept the full responsibility of the risk assessment and any subsequent consequences of being wrong.
The simple model I’ve used has been to look at the probability of occurrence vs. severity of impact. I’ve used it to assess the probability that something is going to happen vs. the severity of its impact. Most problems presented to me as a leader tend to fall somewhere to the bottom left in the figure below. When they are in the upper left, you may just live with the problem, find a workaround, or determine if has a chance to move to the right. If an issue is in the bottom right, it might one that compromises customer or employee safety, causes severe reputational damage, or challenges your integrity; those you must act on immediately in spite of the low probability of occurrence. If you assess the situation incorrectly, you may find yourself moving from somewhere on the left to somewhere on the right faster and more destructively than you expected. If you assess it too conservatively and find yourself overreacting, somewhere to the right, you’re probably spending more money and energy on something that ends up not being a big deal.
Simple Risk Assessment Model
Spending the time to accurately assess risk is so important in determining the scope of attention and action
If I were to map how decisions are made using this simple risk assessment model (again, I’m highly simplifying things), I think it looked something like this.
Covid-19 Hypothetical Simple Risk Assessment
An incorrect risk assessment moved us from non issue on Day 1 to crisis faster than we expected and we were not ready to act.
Given the inputs we’re receiving from news media and insider reports, our general lack of a coordinated state & national game-plan for dealing with the pandemic can be traced back to multiple points, First was the failure to take serious action early. Eventually and slowly, we’re taking the actions required, but will not benefit from their full effect because we are not 100% compliant as a society. We also began our actions too late because we did not assess the probability of risk or its severity accurately and early. Either we didn’t have a plan for assessing the situation, we did not believe in the assessment, or our paralysis delayed our actions.. Our next significant failure, given the uncertainty of our assessment and action plan, was a failure to clearly and consistently communicate what was going on and why we needed to do it. It was imperative to clearly communicate the risk assessment model from day one so that all stakeholders would know why we were taking action. This failure, to communicate to stakeholders (citizens) has exacerbated the problem, rendering our actions impotent. Leadership requires planning in advance for risks, by a) having a clear method to assess the risk, b) to act upon the risk, and c) to clearly communicate the decision making process and consequences to stakeholders (citizens). We failed in all three. Let’s acknowledge this and correct our model going forward. Each new aftershock we’re going to get hit with will need us to get on our feet and get it right to prevent further damage.
Decision #2: The Great Tradeoff
Last week I wrote about the small business impact we would feel as shutdown announcements began. I also felt there was a need to communicate my understanding about why we’re taking strict actions across the US, especially here in California where I live. I’ve been further thinking about the tradeoffs we’re making between direct human carnage through the virus, and the indirect and secondary carnage through the economic aftershocks.
I know that this is a sensitive subject and maybe I’m approaching it too early. I’m sure we’ll see HBR articles and Michael Moore documentaries about this in the coming years. I’m not making a judgement about the choice, rather observing and voicing what it is. I expect we’ll see more poverty, crime, depression, suicides and illness as a result of the economic fallout. We’ve not yet seen anyone communicate the effect of these as factors in any of the models. From a decision making standpoint, this is one of the most profound moral and ethical dilemmas of our time. I don’t know if anyone has looked at this purely objectively and from an actuarial standpoint. I don’t have the data to begin that calculus. In the short amount of time we often have to make decisions, we make do with whatever insufficient inputs we have.
When the dust settles, we’ll look back and consider this “the great tradeoff” of the modern era, “The great tradeoff” is the idea that we could be saving the lives of 2-20 million people and accepting, in it’s place, the devastation of our economy as the consequence of our actions. There’s another unspoken choice, implicitly present, in the actions and words of people pushing back. Could we let 2-20 million people die now to spare the damage to our economy and the subsequent impact that would have on a much larger number of Americans? I’ve tried to simplify this question in the illustration below. If you put health mortality on one axis and economic mortality on the other, you can plot the models presented by the Imperial College of London against the potential economic consequences. I’m guessing at it from a 20,000 foot view as there hasn’t been any real published data or research against this.
Population Health Mortality vs. Economic Mortality
As I watch the blatant disregard for recommendations, the cries of hoax by leaders in our government, friends, neighbors, and professionals, I’ve been trying to understand what is at the heart of their motivation. I am familiar with and understand the interrelated series of emotions, denial, anger, fear in crisis situations. The small business owners and elected officials, heck even just your run-of-the-mill skeptic, who are currently referring to the increasingly strict actions as an “overreaction” are likely thinking about themselves. If you don’t think your health is at risk, it’s hard to see any big picture, you can only see your side of the tradeoff. If you’re being asked to close the doors to your business, you can see your ruin, and really question the reasons that are driving the action. If you’re not in the most “at risk” cohorts for Covid-19, you figure, this isn’t going to harm me so why am I suffering for it!
Given the volume of economic stimulus packages being proposed, and evaluated, there’s clearly some appreciation for the financial impact this will have going forward. I’m not sure anyone though knows the real extent of the economic damage and more crucially, what it will take to get through it and survive on the other side. In the end, even if the model 3 actions we’re taking massively reduce the number of primary fatalities from Covid-19, we will still have a new psychological problem. While economic damage will be directly measured by the likes of unemployment, PPI, CPI, GDP, etc it will also creep up in more subtle longer term psychosocial effects on our communities for years and perhaps a generation or two to come. Those already upset with the scope of their sacrifice may believe that they were made to suffer needlessly. They might become even more irate given a lack of visible blood to offset their own financial ruin.
We cannot underestimate the potential for this to divide us at a time when we most need to be unified. We CAN get ahead of this. We need clear communication. Our leadership can stand to be be more transparent. They can be more precise in their communications. They can be consistent and unified at the local, state and national levels. We must hear directly from our leaders and know that they are making conscious choices, they are aware of the repercussions of their tradeoffs, and have a semblance of a path for how our society emerges on the other side. If we are consciously placing values and humanity ahead of economics we must state it so. As citizens, we must be unified in standing behind those values. We must all be aware of the tradeoffs we’re making. The actions are not difficult, we just need to know what’s driving them.