Risk mitigation: a myth of infinite cost and finite risk

risk-mitigation-reality-graph

You are all familiar with a typical presentation on risk management where we see the same old graph that depicts the risk as finite on one side and the costs of mitigation as infinite on the other side and attempts to show us a balance between the two where the costs are minimal. Well, the idea is correct but guess what? The graph is wrong. The graph is wrong and it gives you a wrong idea of cost distribution which in turn causes you to bias towards more risk. That graph actually makes you and your business less risk-averse. How?

A “traditional” risk cost versus mitigation cost trade off graph.

You see, the idea that the risk is finite while the risk mitigation cost is infinite is a myth.

Risk mitigation cost is only infinite when your resources are lower than those required for mitigation. So, yes, this is possible but unlikely. There are limits to our technology and there are limits to the investment effectiveness but there is a limit to the numbers of risks and mitigation techniques that a business can apply. So the risk mitigation costs may be very high and you may be unwilling to pay …
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Japan after 2014 elections

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The exit polls at the House of Representatives elections held in Japan on December 14, 2014 indicate that Shinzo Abe’s Liberal Democratic Party is set to “win by a landslide”, according to BBC. In reality, the apathy of the public has won Shinzo Abe a carte blanche to do with the Japanese economy as he wishes.

The government said turnout was at just 35%, two hours before polls closed. This election had the worst voter turnout under the current constitution ever. The day after elections all sources quote not the government but the Kyodo news agency that guesstimated the vote turnout at 52.7%. Saves the face of the government, I guess. It would have been hard to cite overwhelming popular support with just one third of the population voting.

The election was rigged as an approval referendum for the economic policies of Abe and this point was completely missed by the general public. They probably also missed the point that Abe will be in the office for four years instead of remaining two. WSJ reports that the public was generally confused regarding the purpose of the snap election and no wonder.

Despite all, the election is literally trumpeted as …
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Will Sony Corporation be up for grabs soon?

sony-headquarters-600x450

Did you notice a recurring theme in corporate takeovers these years? Now we see at Sony Corporation what we saw not so long ago at Nokia. The company received a new top management team that cut all investment into the advanced research and development of new products. The company sells a lot of its assets bringing the value of the company down and the resulting cash is quickly used up. Then, more cuts are executed among product development teams, causing the company to stall and fall behind the competition. The company then suffers a few bad publicity events, causing the share price to drop and leaving the company strapped for cash in the wake of damage compensation payouts. The company is up for grabs and we finally learn who planned and executed the hostile takeover.

The scenario worked well on the mobile phones icon Nokia and may soon play out on the consumer electronics icon Sony.

It was on November 25 that Sony Pictures hacking first emerged. On November 29, copies of Sony’s unreleased movies Annie and The Interview appeared on some sites. Last week, salaries of some executives were revealed, followed by personal data of other employees. Some …
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Position Power vs. Personal Relationship Power

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The recent years saw the quick raise of the so-called “Personal Relationship Power” into prominence to the point where some people preach that it is the only thing that matters. I heard some American and Japanese colleagues actually teach the young and hopeful managers that the personal relationships are the only thing that works and that any manager worth his salt will be able to do whatever he needs with just that – the power of personal relationships – without the need to rely on position power.

As is often the case, this is not entirely untrue, so it sounds believable. On the other hand, it is not entirely true either, so it sounds suspicious if you stop to think about it. What is the deal here? The statement contains part truth and part lie, so in essence, it is false in its entirety but it contains enough truth in it to sound true.

Personal relations cannot replace position power, that is a simple fact. Try imagining that your manager does not have any power whatsoever over you but has to convince you to do your job as a favor to him every single day. Yes, you would probably like …
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People of Japan, what are you waiting for?

Seeing pointless abuse, injustice and absurdity, do not rush to explain it with stupidity; first try to to explain it with vile shrewdness.

Japan is officially in recession after seeing its economy shrink for the second consecutive quarter. This comes as no surprise at all when you check what the economy is based on, how it develops and what the infamous Abe did to it. I, for one, am happy to see it work this way, seeing the Japanese economy react in obviously bad ways to the dirty manipulations of its government. It would have been much worse if the so-called “growth” continued yet for a longer while and then would come crashing hard. People suffer first, so this gentle decline is much better than a hard landing for the Japanese economy. But, again, what is happening?

Rupert Wingfield-Hayes, BBC’s guy in Tokyo reports:

In the spring of 2013, Prime Minister Shinzo Abe launched an ambitious growth strategy that rapidly became known as Abenomics. Its aim was to drag Japan’s economy out of 20 years of deflation and put it back on the road to growth. Billions of dollars were pumped into the economy through stimulus spending. The Bank of


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Japanese “new economy” fails … because of rain!

torrential-rain

Sometimes it is just hard to believe news. Reuters reports that the Japanese government seriously blames the weather for the failing economy. To this, the only response I have is “you must be joking”. But, no, they are serious. The Economics Minister Akira Amari announced that “heavy rain has probably pushed the GDP down by 1.6 percentage points on an annualised basis in July-September“.

What kind of economy is it that can lose 1.6% because of rain? Mind you, the rain happens every year in Japan, it’s sub-tropical. Anyway, this only looks like a feeble “it’s not my fault” outcry from a naughty child. Instead of accepting the fact that the “abenomics” is destroying the economy and causing the country to fail, it is, of course, much easier to blame the weather for the absence of the much touted economic growth due to the so-called “stimulation”.

The article notes that “some economists worry that declines in real wages are the bigger factor behind weak consumption” and I am glad to see that at least some see the situation for what it is. Next, we will see failing consumer confidence and after that – the government will …
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Open Letter to the Emperor of Japan

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Dear Tenno Heika,

Japan is an amazing country. Having lived there for a few years I learned a little about people and their beliefs, the way they do things. Japanese are a smart and enterprising bunch of people. Japan has built a perfectly stable economy within an incredibly stable society that is healthy in all possible ways and could be used as a textbook example of how to do things right. It pains me to watch this great country being destroyed now. The last two years are playing out as a really bad disaster movie or a nightmare that is impossible to wake up from. I feel my heart tearing apart every time I read the news about more economic atrocities from Shinzo Abe and his minions.

Why do I say Japanese economy is perfect?

Japan has achieved through hard labor what many people in so many countries dream about: the economic stability coupled with development and progress. There are many ways to define the “good living” but we would be wise to look at how well people do that live in the country now. Let’s look at some figures and compare with the subjective perception of the situation in …
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The story of economic sanctions as told by PMI

Manufacturing PMI August 2014

While the world is watching the civil war in Ukraine the European economics is sliding into oblivion. The Manufacturing PMI tells a story that should scare the hell out of the politicians of EU – so bad the business dynamics in manufacturing looks.

In August, out of 26 countries, only 9 reported improvement in the index, 15 recorded a slowdown in the two countries has not changed. In fairness it should be noted that 21 countries report PMI is still above the level of 50 points, and below only 5. But it is not so important, because the dynamics is still downward. There are those who are moving in the right direction: in Greece and Turkey business activity index in August was able to finally overcome the mark of 50 points. The rest of Europe presents a serious reason for concern, whether peripheral or central: everywhere there are signs of a serious recession.

United States, on the other hand, sports the best activity indicator in the world. PMI index has reached its highest level since April 2010 and reached 57.9 points. In case of U.S., the export orders component grew at the fastest pace in three years, and the employment …
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Externalities are crucial for the software industry

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Externalities exist in any business. We are very familiar by now with the externalities of the manufacturing industries – air and water pollution, noise pollution, depletion of resources etc. But what about the software industry? How bad is the industry’s addiction to the externalities?

In economics, an externality is a cost or benefit which affects a party who did not choose to incur that cost or benefit.[1]

For example, manufacturing activities which cause air pollution impose health and clean-up costs on the whole society, while the neighbors of an individual who chooses to fire-proof his home may benefit from a reduced risk of a fire spreading to their own houses. If external costs exist, such as pollution, the producer may choose to produce more of the product than would be produced if he were required to pay all associated environmental costs. If there are external benefits, such as in public safety, less of the good may be produced than would be the case if the producer were to receive payment for the external benefits to others. For the purposes of these statements, overall cost and benefit to society is defined as the sum of the imputed


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Microsoft strategy success: Nokia no more

R.I.P. Nokia

Now it should be painfully obvious to everyone that the long-term strategic plan of Microsoft to bring down and absorb Nokia worked. Many years of hard work by high-profile managers and large investments are finally set to bring home profit for Microsoft.

Now that Nokia is bought by Microsoft, Microsoft can finally make the mobile devices that are, well, mobile devices. They will have the technology, the market, and the people. Unfortunately, they still have to make it all work. They still may run this very successful business of Nokia into the ground. And there is a high chance they will.

There was a time when I was wondering if it was just a Microsoft venture, or a joint venture by Microsoft and Samsung. Actually, no, I would not go as far as to say it is all clear now. We will see how things pan out.

The hole in the market remains though and the market share of Nokia is still up to grabs. The biggest problem is really the patent pool. This is the time when you wish there were no such things as patents. The market could flood with new and exciting mobile phones now if …
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