Making Thoughtful Decisions in a Complex World
Being risk-aware without being risk-averse
Law firms have always been in the business of managing complexity. It’s part of a lawyer’s job description to be able to dissect complex questions and provide effective counsel to clients, capably attract top talent, and compete in the marketplace. But while the various demands of working in the law are not new, the complexity that law firms must navigate in the process of managing them has been multiplying in recent years – and is coming from new directions. Ongoing geopolitical conflicts, macroeconomic challenges, new sources of competition, and rapid advances in technology are introducing both opportunities and risks that can be difficult for firms to anticipate.
This environment requires a mindful approach to making decisions. Graeme Miller, CEO of Riskoncise Ltd, who spoke at a recent conference for Travelers legal clients, says it’s especially important to account for complexity in risk management because the greater the complexity an organisation is facing, the more uncertainty (and therefore risk) it needs to manage. Simple models for managing risk will be ineffective if firms don’t account for the multidirectional impacts of a decision. “Complexity generates more ways for things to go wrong, so you need additional controls in place to lead you in the right direction,” he said. “If you don’t understand your risk profile, you’re less likely to know where your key sources of risks are. Then you could find yourself constantly firefighting – and haemorrhaging resources such as time and money.”
Yet even when the complexity of the business environment calls for firms to embrace potentially new ways of making decisions, that doesn’t always happen. New business developments, particularly in technology, may seem so esoteric and fraught with risk that firms may naturally over-rely on the views of a trusted few instead of making decisions based on a range of informed perspectives. Complexity can lead to a herd mentality in organisations. The result is that a group of people can make a rational decision to follow the wrong course of action, even though there is information within the group that would have led to a different course of action if it had simply been shared.1
Conversely, firms that take proactive steps to resist groupthink can generate a ripple effect of benefits.
“Firms that adopt frameworks designed to diversify their decision-making and manage their evolving risks will be in a better place to tackle highly complex decisions and initiatives,” said Sharon Glynn, a director and underwriter at Travelers Europe. “Beyond that, they will also present themselves more capably and inclusively in the marketplace – to clients and to potential talent.”
Resisting the herd
So how might this look in practice within a law firm?
Consider just one of the complex and layered issues on the minds of law firm leaders right now: the adoption of new technology. Developments in legal technology – artificial intelligence (AI) being the latest of them – are quickly transforming how law firms operate, the tools they have at their disposal to support clients, and the risks they must anticipate and manage in the process. Meanwhile, these changes are expanding the capacity of professional services firms to offer legal services, so law firms are facing competition from new sources.2
Law firms must be in a position to respond, but first they should consider a wide range of questions about many different stakeholders, including clients, employees and beyond – and question themselves in the process too. For example, when considering how AI-supported tools could best support clients, they might ask: How can we control the introduction of bias into this technology? What is the best way to ensure our tools are ready to be used in client work? How will we respond if clients resist AI-supported work – or insist on it? How will client expectations change with regard to the cost of the service we provide and the value we provide for their fee? How can we best monitor and manage the risks this technology presents?
Categorising a challenge can help a firm whittle it down into digestible parts and determine how best to manage it. One of the approaches Miller suggests is grouping projects into one of four types:
- Painting by numbers: Project stakeholders know what needs to be done and delivered.
- Going on a quest: Stakeholders know what needs to be delivered but have to explore to determine how to deliver it.
- Making a movie: Stakeholders know how to deliver a project but must conduct some analysis to determine what needs to be delivered.
- Walking in fog: Stakeholders know a project is necessary but don’t know how to start it or deliver it.
He says this assessment can help an organisation estimate where the complexity resides in a project, which puts it in a stronger place to identify potential risks.
It’s important to assess how human factors can play a role in the complexity of a risk as well. How reliable are the judgments of the people making decisions about it? What access do they have to information? What cognitive limitations exist in the group? What timeframes are in place for making decisions? Consider the factors that influence how stakeholders are making decisions as well – and what unconscious biases could be present. “If you highlight areas where human subjectivity is having an influence, you can increase the uniformity of the assessments you’re landing on,” Miller said. This may provide some balance for firms that have pockets in which they are quick to embrace innovation and others where they get mired in potential risks lurking in the details.
Understanding the ways in which people and risk complexity intersect may help firms move away from the siloed thinking that can introduce bias and lead to groupthink. Complex decisions have consequences that affect stakeholders in different ways, so convening diverse groups of people to reach those decisions can help firms better anticipate consequences and manage them. To encourage the sharing of wide-ranging viewpoints, firms must create psychologically safe spaces where people feel comfortable sharing fears and vulnerabilities.
Enhancing risk management to account for complexity
The complex decisions that law firms must make in the current business environment have high stakes – they can impact profits, client relationships, employee attraction and retention, and the overall future of a firm. Making these decisions competently and responsively calls for firms to enhance their traditional risk management practices.
It can help for firms to create the conditions in which great ideas can easily bubble up to the surface and be carried forward, as well as the mechanisms that can monitor and minimise potential risks. On the idea-generation side, they can cultivate creative environments that allow ideas and patterns to emerge. That could include shifting away from having people work in silos so they can see firsthand how their work complements other functions, as well as creating focus groups around various topics to expose participants to conflicting views and then assessing the responses uniformly. Firms can establish mechanisms to capture ideas and drive the best ones forward, then record and repeat the approaches that work.
On the risk management side, firms can create mechanisms for flagging and managing potential risks that stem from complex projects, knowing their effects are likely to touch multiple stakeholders and require a collaborative response. They can commit to considering the sources of guidance before acting on it. At the outset of a project, they can compartmentalise the more unpredictable or high-stakes components so they can contain the impacts if it doesn’t go entirely to plan. They can also set up checkpoints to watch for warning signs that a project or one of its components is veering off track.
“Taking advantage of opportunities requires firms to face risk – to manage it and not avoid it,” said Paul Smith, senior risk management consultant at Travelers Europe. “By embracing a diversity of viewpoints when dissecting a complex issue, as well as incorporating some safety nets into the process, law firms can manage the unknown whilst encouraging the innovation that will allow it to compete and thrive.”
The information provided in this presentation is intended for use as a guideline and is not intended as, nor does it constitute, legal or professional advice. Travelers does not warrant that adherence to, or compliance with, any recommendations, best practices, checklists, or guidelines will result in a particular outcome.
Sources
1 https://www.mindalpha.co.uk/insights/complex-decisions
2 https://www.lawgazette.co.uk/practice/big-four-increasing-share-of-legal-market/5115164.article
