Understanding and Assessing Risk

America is a country built on risk. When settlers from England came to Jamestown in 1607 no one knew how it would turn out. In fact only 61 out of 500 colonists survived during the “great starvation” from 1609-1610. The risks were well known as several British colonies were failures and abandoned, yet people still continued to come to the New World in hopes of a better life.

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One of the primary goals of being an engineer is that you have to find ways to minimize risk, at the same you’re expected to innovative and solve challenging problems. At times these can be two conflicting goals. Can you be innovative and solve problems without taking major risks? Let’s look at IBM, a company inherently built on risks T.J. Watson, Sr., bet the entire company on building tabulating equipment when their was no market for tabulating equipment. But he saw a future need, and that need came when the Social Security Act of 1935 was passed, and IBM was the only company that had the necessary equipment. T.J. Watson, Jr also saw the future and bet the future of the company on computing and spent five billion dollars on building the revolutionary System/360 mainframe. If IBM stayed in a cautious mode and never branched in new emerging areas  IBM would not be the admired company it is today.

The way individuals approach risk can be divided into three categories risk averse, risk inclined and risk neutral. Risk averse individuals have a tendency to shy away from risk, risk inclined individuals are predisposed to taking risks, and risk neutral individuals lay somewhere between the two former categories.

We should ask ourselves larger questions about risks, how many risks should we take and why? A paper that was presented at the International Conference on System Science, titled, “Understand the Effect of Risk Aversion on Risk”, discusses the perils of being risk illiterate.  The paper makes a few key points, first if people are too risk averse then small incidents that have occurred will be overblown leading to hysteria and inflated importance. This occurs because some individuals don’t have the ability to perceive between small and large incidents. Consider the potential failure modes of a server, if one chip in an 8 core processor fails on a single node this does not take down the server, and it is unlikely to cause interruption and can be repaired. If the server were to lose power and take down the entire mainframe then it would be a major failure event. We must not be too careful by over-planning and over-training for specific events, instead we should be focused on determine what are acceptable level of risks for failure of systems at a variety of levels. Should we spend more time focusing on major events that could lead to system failure or should we spend time worrying about a cosmetic defect?

When I think about my own career I’m risk inclined as a young engineer, I think there’s no reason for me not to try to introduce innovative processes if it’s going to lead to improved quality and more efficient manufacturing. In my opinion settling for mediocrity is worse than failing and this sentiment that defines first-rate engineers, scientists, businessman, and investors.

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