Systems thinking: Looking at risk management holistically

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By Neil Cantle | 16 April 2012

When faced with a wall of complexity, most people have been taught to immediately seek to break the problem into more digestible pieces, study them, and then reaggregate to understand the “whole.” This approach actually works pretty well if the situation does not change too frequently. Generations of practitioners studying the problem will find increasingly better ways of breaking it up, and reaggregating the solution. But what if things are frequently changing and adapting? In this case, the collaboration over time no longer yields the improving accuracy you would hope for.

The reductionist approach is so ingrained in our training that the idea of looking at the full holistic picture as a first step nearly always sounds like a daunting and fruitless route to take. As it happens, this is exactly what we need to do.

This article, published in the April/May issue of The Actuary magazine, introduces some of the ways you can look at the world holistically, but rapidly get to an understanding of which tools can be used to model and manage risk appropriately.