It was the six minutes at the end of NASA’s Mars Explorer mission that were the most anxious for Mission Control. The nine months of interplanetary travel from Earth had passed smoothly, but the six minutes which preceded touchdown on Mars required a series of procedures to decelerate the probe from twice the speed of a bullet to a comparatively gentle descent onto the surface.
Therefore it was in those six minutes that Gentry Lee, NASA’s chief systems engineer, concentrated his risk mitigation strategy. In space exploration, small errors can end up in big failures, so at the planning stage Lee set about logging everything that could go wrong, and then set a plan to deal with it.
The NASA approach was one advocated by senior risk officers at the British Bankers’ Association the other day, as Prof Anette Mikes of Harvard Business School showed how risk planning in a very different sphere held lessons for the world’s banks.
Prof Mikes explained to the delegates at the BBA conference centre that, as a chief systems engineer, Gentry Lee was effectively NASA’s chief risk officer for Mars Explorer. He had identified three different types of risk:
- business as usual risks – those engineering and physical challenges the team already know about, managed and mitigated;
- development risks – the new technologies and applications to be used on the mission which had been untried; and
- “unknown unknowns” – those eventualities which, without a lot of imagination, would be unforeseen.
- Prof Mikes explained that the same model, slightly adapted, could apply to the business of finance. But crucial to all of this would be the adoption of a new mindset among staff: the expectation that every new idea would need to be explained and justified exhaustively, and effectively tested to destruction – and at a senior level.
This last point is crucial: to be able to enforce the essential cultural changes on an organisation, risk monitoring needs to be carried out at every level of the organisation, and the chief risk officer needs to sit close to the top.
Since long before the credit crunch, the BBA has been looking at new ways to think about risk, drawing on experiences from other fields, academic research and many other resources to find new and better approaches to meeting the challenges of today’s financial markets. Understanding and managing risk is the essential defence against another financial crisis, and the debate on how such risks can be properly anticipated, assessed and managed is one of the absolutely key elements of banking reform.
And, as Prof Mikes says with a smirk, it’s not rocket science.