Five Questions Over Coffee with Alex Sidorenko (ep. 68)

Who is Alex?

Founder and host of the largest online risk management and decision making conference. RISK AWARENESS WEEK is the biggest global online platform to learn risk management and decision making. Amazing lineup of international speakers share practical case studies on integrating risk management into corporate decision making, planning, budgeting, project management and risk-adjusted performance management. Our aim is to bring together best quantitative risk management practices in a easy to understand and practical fashion for a fraction of the price. You can watch the workshops live or in replay on your phone, computer or tablet. More than 10000 participants watched RAW workshops over the last 3 years, don't miss this opportunity to upgrade your risk game. The workshops will be of value to decision makers and risk professionals alike.

Key Takeaways

[1] How do you use risk information to help your environmental team build better business cases for the things they need to change?

[2] Humans brains are good at pretending that things don't exist, even though the risk is real and obvious to everyone, our human brain still thinks of ways to justify doing nothing to us.

[3] Risk awareness week for me to became kind of this fresh breath of air, where I brought in scientists, NASA engineers, oil and gas engineers, you had people who actually did something that made a huge difference. And no consulting talk, no hypotheticals, you know how the future is bright. And you know, we'll save the planet. Just very pragmatic, very practical, simple things that everybody needs to understand about making decisions under uncertainty.

Valuable Free Resource or Action

https://2022.riskawarenessweek.com

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Transcript

Note, this was transcribed using a transcription software and may not reflect the exact words used in the podcast)

SUMMARY KEYWORDS

risk, risk management, people, awareness, called, uncertainty, thinking, alex, decisions, choices, averages, scientists, calculators, business, book, irrational, mathematicians, predictably, dot, electricity

Stuart Webb  00:23

Hi and welcome back to it's not rocket science five questions over coffee I'm here today with Alex Sidorenko. I have in front of me my coffee, I better not show you the, the design on the front, it will be advertising, we don't do that sort of thing. So you've got your coffee in front of you, that's great to see Alex run something called risk awareness week and is is really quite important because risk is something I don't think nearly enough. People take seriously in their business risks are around us everywhere. And not a lot of people sort of think about them and and measure them and then do something about them. That's the key thing. It's all very well knowing about risks. But it's then what do you do about it? How do you actually deal with it? So really delighted to have Alex here and have a really interesting conversation about this. Alex, welcome to It's not rocket science, five questions over coffee.

Alex Sidorenko  01:13

Thank you, and welcome to your listeners.

Stuart Webb  01:15

Thank you. Listen, Alex, tell me who is your who is the sort of ideal person that you're trying to reach? With your business? What is it? What is what is it that they're doing?

Alex Sidorenko  01:24

Yeah, well, so me reaching somebody with a business is a bit of a stretch, because my day job is working as an executive, like a risk executive, and then large multibillion dollar corporation. And then as a hobby, I have this desire, this burning desire to share risk competency with anyone, because I think, and my experience kind of tells me that thinking about risk is something humans are very bad at. In general, whenever we make the life choices, you know, marriage, sending kids to private school, relocating, you know, buying a house versus renting, investing, all of those decisions are quite risky. There's a lot of uncertainty associated with that. And we're not very good. So my audiences, in my nine to five job, my audiences, basically, you know, board members and executives and other shareholders that I deal with, on a regular basis. And from kind of in the night, I put on my life, you'll share the video with somebody later, I have my brand in, you know, risk awareness week, hoodie on. And that's kind of my night hat, where I tried to just raise risk awareness around the world, bring this competency of thinking about risks before they happen to people.

Stuart Webb  02:49

So tell us a little bit about sort of the, the, if you like some of the dangers of of, of not, not not being risk aware and about not reacting to risks in the right way.

Alex Sidorenko  03:05

So there's, there's been a lot of fascinating research in in that area. In 2002, Daniel Kahneman and Vernon Smith got the first Nobel Prize in Economics in that area of research. And then in 2014, Richard Taylor got the second Nobel Prize in Economics for kind of continuation of that research. But basically the findings of all of this, there's this whole area of science called neuro, neuro economy, behavioural economics, neuroscience. And what this group of scientists basically studies is how does human brain process uncertainty? You know, thinking about the future thinking about choices, thinking about making decisions when the information is incomplete. And their conclusion is what a an Israeli scientists Dan Ariely calls predictably irrational. So humans in general, whenever they're faced with an uncertain choice, or a risky decision to make, they could, according to this scientists, they will predictably make irrational choices, and sometimes it's just sub optimal. But sometimes it's just playing bad, dangerous bad choices that we as humans make. And corporations are different, because the way companies traditionally planned budget forecast price pretty much ignores uncertainty. So this, this notion that you know, things are not guaranteed they're not set in stone. Somehow, this is us to most of the people on the planet skill. And whenever we're thinking about the future, we just kind of wouldn't not just not appreciate but we completely ignore the fact that there could be multiple futures the future is uncertain. And unless we can have a count for that, and discount for that and plan for various possibilities, various scenarios, we're pretty much setting ourselves for failure. So a lot of a lot of research suggests that, you know, when we look at the situation, we don't see the underlying uncertainties and risks. And even if somebody comes into the room, and tells us well, there's this risk that you haven't considered, our brain immediately starts processing excuses for discounting. And ignoring that person who came into the room to help us make a better choice. So not only we don't see things, we also resist, some, when somebody brings us things like on the plate and says, Here are the risks, and be mindful of that, we will ignore that. And which is what I found absolutely hilarious is when everybody agrees, finally, that the risks are real, and we need to do something about that our brain goes into this kind of stage where it just comes up with excuses on why somebody else needs to do something about that. But we don't, like you know, relocate, you know, move away, for example, you know, there's a big war happening in Europe. And a lot of very difficult choices need to be needed to be made. And there are a lot of people who say, Oh, I am going to stay where I am. Despite this, despite an imminent, very real threat to my livelihood. And people just going to continue to just pretending that things don't exist, even though the risk is real and obvious to everyone, our human brain still thinks of ways to justify doing nothing to us. So why risk management is important is because I think evolution design this, and there's this whole explanation, you know why we need system one thinking what Kahneman calls new because, because thinking about risks and uncertainty, it takes up a lot of energy, it takes basically a lot of glucose, it absorbs a lot of energy that we have. And we can't operate in this energy intensive mode, most of the time. So our evolution designed this to be operating in an energy preservation mode. And we're just basically we kind of idling our brain is idling, looking for some templates, quick solutions in a simple, simple answers. And unfortunately, for some non typical, scary, risky situation, those benign answers are not good enough, they're there. That's why they're predictable, but they're completely irrational.

Stuart Webb  07:45

So tell us about risk awareness week, the the URL that's going across the bottom of the screen just now, which is it's 2022 dot risk awareness. week.com. Tell us tell us a little bit about what what you're doing with that. And you know, are there are resources that we can learn from in order to be able to be more aware of risks in our businesses in in our lives.

Alex Sidorenko  08:08

So four years ago, and this is the fourth year, I'm running risk awareness weekend since then, that became kind of one of the biggest global virtual risk conferences in the world. And four years ago, way before COVID, and virtual conferences became sexy. I very much disliked travelling to various conferences now used to speak at a lot of conferences all over the world. And I'm very much just like the travel and the logistics associated with that. So I was looking for a platform that would allow me to have different speakers from all over the world and have it somewhere virtual that I can share with the rest of the world. And so finally, I've been looking for it for about five years. And finally, in 2019, I found one, which was affordable. And so I created this risk awareness week on this virtual platform. And back in the day, it was 2019 dot risk awareness week. And you can kind of follow the logic and if you could, if you go to 20 nineteen.if, you go to 20 twenty.if, you go to 2021 dot, and 2022 dot. It's it's like four different conferences, and I have another charity and winter dot, you know, charity dots, like there are a lot of risk awareness weeks, over the years. And so that, for me, was an opportunity to bring together some of the best minds in decision science, probability theory, and neuroscience, some of the best minds bring them together on a single platform, which was amazing because some of them are in Australia, others are in US and Canada. Some of them are in Africa, and all different timezones and yet, because it's a virtual platform, everybody could kind of come together. And since then, approximately four to 5000 people watch it every year from about 125 trees, which makes me very passionate and proud of that. But there's, there's the kind of the the underlying reason why I created risk awareness week is that in the risk profession, so it's for what first, it's important to understand kind of, there's this risk angle to everything you do in work. Whenever you make a decision, whenever you plan, whenever you forecast something, whenever you think about the future, there's this risk angle. But unfortunately, it's not, it's not the end of the story. Because in the risk angle, there's this whole profession called Risk Management. And that is separated into two, what I would call Well, I call it risk management, one and risk management, two, and one is astrology, and the other one is astronomy. So the other one is mathematical science based. And the astronomy and astrology side is kind of hypothetical wishful thinking beautiful colours and pictures, but has absolutely no evidence to suggest that it works. And so there's this whole management fad, just like the ESG and GRC. Like that there are a lot of management fads, behind which there are a lot of good things. But the kind of the top layer, this commercialization layer is just nonsense. So in risk management, unfortunately, we have exactly that. And most of the conferences dedicated to risk on the planet. Even if a person wants to Google risk management, just out of the blue, if they were to Google risk management, the chances are 99% of the responses in the search would be horoscopes. So astrology, like no scientific background, like just nonsense. And so risk awareness week for me to became kind of this fresh breath of air, where I brought in scientists, NASA engineers, oil and gas engineers, you had people who actually did something that made a huge difference. And no consulting talk, no hypotheticals, you know how the future is bright. And you know, we'll save the planet. Just very pragmatic, very practical, simple things that everybody needs to understand about making decisions under uncertainty.

Stuart Webb  12:23

Interesting, interesting, I have done a lot of work. In my previous career before I started doing what I do. Now, I was a, I was a scientist dealing with virus viruses. And obviously, one of the things we used to deal with was the the certainty that there would be a virus that would be coming along that would cause a global pandemics. And the uncertainty was when, and obviously, you know, the, the message that we've received over the last two or three years is, many governments knew that there was going to be a global pandemic, but pretty much all of them decided that they didn't really want to deal with it now, because it was too difficult and didn't want to put the money aside, et cetera, et cetera, et cetera. So I buy into a lot of what you're saying it's very difficult for people to face up to something which is a little bit uncertain. Do you really think it's going to happen? And then when does what what will you know, the the act of dealing with it is, it is not always pleasant?

Alex Sidorenko  13:21

Yeah, absolutely. Especially. And this is, this is one specific case study that I had with my environmental team. So I was working for this large fertiliser company, $10 billion global corporation. Very big. And one of the challenges was, how do we use risk analysis risk information to help our environmental team better build better business cases for the things that they need to change. And one of the things we did was we helped them justify water purification, additional water purification plants, because the water pollution was too significant. And it goes back to how well you kind of you sell the message or you communicate the message, because they've been trying to get approval for this. And it was like a $20 million investment. So not a small, it was a it was quite a sizable investment. And they spent years trying to justify the need to implement these controls and to build the water purification plant. Until we came and helped them to show that the risk exposure that the business was sitting on was about $300 million. And by spending 20, they actually ended up reducing risk exposure to I can't remember 50 or 10 10 million so they we helped them and this is what risk management does. It helps you quantify uncertainty and put it in some sort of measurable terms. And then many decisions that you had a lot of unease and discomfort about made can become a no brainers because you're saying, Well, essentially on 300 million exposure that could hit your business cashflow. Today, tomorrow, or every day, you don't deal with this problem. And then you have this much cost to get rid of this exposure, not completely, but you reduce the exposure quite significantly. And then it kind of becomes an almost no brainer than why you need to spend the money to mitigate the risk. So this is what risk management is about. It's not only just kind of bringing to the surface, what the underlying risks are, but also helping to package the risks into something that business understands.

Stuart Webb  15:38

Brilliant. Yeah, Alex has ever been a particular book or a concept other than sort of Daniel Kahneman, some of the some of the, the Nobel Prize winners, you know, I really appreciate some of the, some of the work they've done to to to, to justify their Nobel Nobel Prizes in memorial of Nobel the economic prizes, in memoriam of Nobel so, so other other books or concepts that are really sort of driven some of your some of your thinking and some of your inspiration.

Alex Sidorenko  16:13

So because the kind of the science of risk management is sitting on three pillars, the the math, the psychology and the decision science, I have kind of two different books that I recommend. So one is on the psychology side, and it's by this Israeli scientists that I mentioned called Dan Ariely. Now it's called predictably irrational. It's it's, despite the fact that and I think this is very fitting for the name of the podcasts, despite the actual underlying neuroscience being very complex and very difficult and quite questionable in some of the conclusions that they make. Dan Ariely does a very good job of popularising it, because some of the findings and his book is like very easy to read very basic introductory level into the concept and the book is called predictably irrational. So it's very easy to find, and he shares a lot of like very domestic cases, you know, why do we buy a new mobile phone? You know, why do we always overspend on vacuum cleaners or cause which is completely stupid, but we still do it. And there's like, there's a scientific explanation where we do it. So that's one on the, on the psychology generally predictably irrational. And on the other side, a book that I highly recommend is by Sam Savage, in us called flaw of averages. And it's more business driven. There's basically in the back in 1904, or 1906, the Danish mathematician, came up with this theory called Jensen's inequality, but you don't need to know that because people already simplified it all for for the average reader. So he came with basically with a mathematical theory, which says that whenever you think about uncertain future, and you're trying to try and dumb it down to a single scenario, like whenever you build a business plan, or budget, and you have single point estimates, especially if you're if those estimates are your averages, you're pretty much setting up yourself for failure, because you're ignoring all of this volatility in your business plan. And you're making not just suboptimal, sometimes really, really bad decisions. And so if law of averages is basically Sam's attempt to but by the way, Sam is a speaker at the risk awareness week and has been since the very inception of 2019. He's a very famous dude and fascinating speaker in us. And so his book flaw of averages, is kind of is very nice introduction into the topic of risk management on why whenever you plan your next trip to a holiday destination, why or whenever you know, the planet wedding budget, you shouldn't use single point estimates. And you should use ranges instead, by the way that I for one had like a whole monte-carlo Like mathematical model for my wedding budget, which my wife absolutely loved. I'm being sarcastic. She did not. But yeah, I am weird in that way I model most of the things in my life.

Stuart Webb  19:44

I'm sorry to hear that. But it's something that I'm sure we can get you some tablets, but that I've asked you. I've asked you some questions. And I'm sure there's one question that you're currently thinking. He hasn't asked me about or he hasn't asked the question that's really critical here. So tell you what, for my final question, My question to you is, what's the question I should have asked you? And then once you've answered once you've asked that question, you better answer it. Otherwise, we'll never know what it was what the answer to that question.

Alex Sidorenko  20:11

So I think in the very fitting in the context of this podcast, the reality is that the underlying science of risk management is rocket science, it is actually very difficult. And your probability theory is actually quite complex. There's, there's kind of there's no dancing around that. But the good news, and, you know, so the question, I wish people asked me more often, that I don't have a PhD in mathematics. And then what do I do? And my answer to that is that think of risk management, just like you think about electricity. Most people on the planet have no idea how electricity is generated. And yet, we have no problem using it. And this is what we, you know, in risk management we call generators and users, we have mathematicians who generate uncertainty distributions, and they forecast and they help you model they build models, they build calculators. And there's a very small percentage of those people go there. These are the people that sit in kind of their basements of pentagon and large corporations have like one or two of these people, they usually very kind of hardcore mathematicians, and they do their own stuff. But that doesn't mean that you need to become like one of them, which is actually impossible for anybody to become a math genius, unless you kind of you've spent your whole career doing that. But that's not that shouldn't stop you from using the risk information and thinking about risk, because as the user, you have no trouble switching on lights, and using electricity. It's exactly the same way with risk analysis. We are trying and this is what risk awareness week is kind of all about. We're trying to create templates and calculators and site sample data points, that you can just put it and put it into into your business plans into your forecast, you can use that to help you make decisions, we have calculators, and sample models for most kinds of problems out there that somebody who is very knowledgeable he is built. And then we just want more people to use it, just like they started using electricity. The only difference is that electricity used to be really, really expensive, you know, using risk analysis and probability isn't really expensive at all. And it's actually much more much more accessible. So the kind of the final message that I want to get across is this is not privileged to some mathematical genius is subsidy in some way in the world. It just if you're not one, it just means you need to find somebody who's done all the pre work. And then you just reap the benefits of, of risk analysis in your work. Whenever you next make an investment decision. Whenever you make your next forecast budget or sales plan. Or you forecast you know, you think about your next budget for your trip or you know, deciding whether you want to buy a house or rent a house. There is probably a math genius who already done all the all the work and then you can just reap the benefit of using using the calculator.

Stuart Webb  23:29

Brilliant. Alex, this has been a really fascinating discussion, I really, I urge you all go to risk awareness. week.com 2022. But 2019 2021 22 You're gonna get to see some of those some of those talks, the discussions. And it's been a fascinating hearing your take on this, it is a subject which is just not as well understood as it should be. I appreciate just how much effort you're putting into trying to raise the awareness of risk. Aren't you doing a great job? Thank you very much. Thanks, Jordan. Listen, if you'd like to get onto our mailing list to hear so I send out an email once a week saying who's going to be on the on the show this week, giving you the opportunity to tune in live ask questions if you want to you if you want to get onto that mailing list, go to https colon forward slash forward slash TCA dot FYI keep it nice and simple. For those of us that don't have PhDs in math, TCA dot FYI, forward slash subscribe, get onto that list and so that you can see the interesting people coming up. People like Alex, Alex, thank you so much for spending sort of 20 Minutes with Us really appreciate this. And I'm sure we're gonna get a few more people at that risk awareness week. Next time. Thank you.