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    Novel Risks
    27 Mar 2020Working Paper Summaries

    Novel Risks

    by Robert S. Kaplan, Dutch Leonard, and Anette Mikes
    Companies can manage known risks by reducing their likelihood and impact. But such routine risk management often prevents them from recognizing and responding rapidly to novel risks, those not envisioned or seen before. Setting up teams, processes, and capabilities in advance for dealing with unexpected circumstances can protect against their severe consequences.
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    Author Abstract

    All organizations now practice some form of risk management to identify and assess routine risks for compliance—in their operations, supply chains, and strategy, as well as from envisioned external events. These risk management policies, however, fail when employees do not recognize the potential for novel risks to occur during apparently routine operations. Novel risks—arising from circumstances that haven’t been thought of or seen before—make routine risk management ineffective, and, more seriously, delude management into thinking that risks have been mitigated when, in fact, novel risks can escalate to serious if not fatal consequences. The paper discusses why well-known behavioral and organizational biases cause novel risks to go unrecognized and unmitigated. Based on best practices in several organizations, the paper describes the processes that private and public entities can institute to identify and manage novel risks. These risks require organizations to launch adaptive and nimble responses to avoid being trapped in routines that are inadequate or even counterproductive when novel circumstances arise.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: March 2020
    • HBS Working Paper Number: HBS Working Paper #20-094
    • Faculty Unit(s): Accounting and Management; General Management
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    Robert S. Kaplan
    Robert S. Kaplan
    Senior Fellow
    Marvin Bower Professor of Leadership Development, Emeritus
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    Dutch Leonard
    Dutch Leonard
    Eliot I. Snider and Family Baker Foundation Professor
    and Professor of Business Administration, Emeritus
    George F. Baker, Jr. Professor of Public Management
    Contact
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