I enjoyed reading The Real Story of Risk, both as a risk professional in banking and as an ordinary human being.
The book takes you through an analysis of risk as it relates to human evolution and some of the threats we have experienced in the past, face presently, or may encounter throughout our future existence.
Croston’s book helps the reader understand the relationship between our conscious rational thoughts; our sub-conscious, sometimes irrational ones; and our emotional reactions to them both when it comes to making life’s daily decisions about risk, for the short and the long term. The author by background is a biologist, and makes the interesting point early on that “our biology and instincts protected us from predators and snakes, but now they lead us astray when these perils have dwindled in the developed world.”
I didn’t consider myself a particular thrill seeker by nature; but I have engaged in some of the risky activities referenced in the book throughout my life experiences. Now I know more about why I may have--but probably shouldn’t have--made some unfortunate choices in retrospect.
As a mother, I especially enjoyed Croston’s exploration of the child and teenager stages of life. I already suspected many of these things, but it made me feel better to know I was right after all. For example, Croston discusses the scientific reasons behind teenagers’ difficulties with driving, and recounts why, as he describes it, “male teens go particularly nuts when you put a few of them together in a car on a Friday night.”
I would have liked to read more about how society, politics, and the media influence people’s decisions about risk in reaction to those types of pressures. I guess that may be an idea for the author’s next book?
Financial application of Real Story
As it relates to banking specifically, I did not find any “magic bullet” of insight that would solve all of the issues in my day-to-day banking job.
The book does more for overall understanding of risk. I did find it interesting to validate that people by nature think in the short term and make decisions accordingly about risk and reward. This I find to be true in many aspects of risk management in a financial institution.
Maybe it’s because bankers are always trying to meet the immediate expectations of shareholders and regulators. Or maybe the current environment is too volatile and changing too rapidly to allow us to think very far ahead.
We must identify and remediate not only our current risks, but imagine those that have not yet occurred and strive to prevent those from happening as well. The author does provide some thoughts on why we think this way, which may help us to think differently going forward.
Interestingly, the chapter that discusses teenage drivers at length, “The Balancing Act,” joins that issue with, of all things, the financial crisis that led to the Great Recession. A representative quote from this section:
“Knowingly buying a risk based on its perceived value is one thing. The problem in the financial crisis started when people thought that they could make risk disappear, like a rigged-shell game, but the risk was still there all the time, biding its time to come back and bite us all in our proverbial asset.”
Risk through an anecdotal eye
Traditionally, banking is about relationships or “stories,” as the author puts it--qualitative measurement is still the favored approach by most community bankers--it’s about people, which is always more interesting than data analytics.
Yet while banking is about people and relationships, that is being bypassed. More and more, community bankers are being asked to put quantitative risk measurements in place and manage to them.
This approach has historically been left to the larger banks and their expertise. As we move into the future, however, this approach becomes much more important to making informed decisions for competitive advantage in a marketplace of the next generation. Our resources are being stretched further, our desired profit margins are harder to achieve, external economic and crime threats are increasing, and technology has completely changed the way we live and do business.
Managing these risks and many others are critical to our future success and survival, in business and in life.
Risk, the stuff of life
Whether you are driving to work or contemplating survival of the human species, analyzing risk in everything we do is necessary in order to live life and run our businesses successfully. With appropriate planning and a little luck we should be able to do so prudently. This book will provide some thoughts as to how you might think about and approach risk in different ways.
It should at least make us more aware of risk and what can be done. In his opening, Croston gently pokes fun at people’s attitudes: “We do our best to ignore common hazards like heart disease, which kills one in five people in the United States, while we are terrified of sharks, which are mainly a hazard in movies.”
Even so, we can plan for everything and sometimes even with best efforts for prevention, the unexpected happen.
So, having thought about my risks today, as I do everyday, I think I’ll just step outside and enjoy the sunshine…
Wait, did I put on my sunscreen?
Oh, and where is that umbrella of mine?
Just in case.