6 Must Read Risk Management Books for 2020

Risk management has evolved quite a bit in the last century, from a simple way of managing business risks to becoming a tool assisting business leaders with making smarter decisions involving uncertainty and its subsequent limitations. I have found through my studies and academic work that some of the best risk management books out there are not even purely about risk management. Books that focus on cognitive psychology, business failures, and mathematics provide equal if not more value for risk practitioners in helping them in their day-to-day duties. These subjects, in my opinion, are also ones that entertain me much more than some of the rigid risk management textbooks we use to indoctrinate students into the discipline. This article will focus on books that may not even mention the word risk management through hundreds of pages but provide immense value to the overall field in one way or another.

The list below dives into six books I feel should be a part of any risk manager or risk management student’s bookshelf to assist them in helping individuals and organizations take more intelligent risk through elevated reasoning and decision making. If the main focus of risk management is to create rigid programs looking to plant the seeds of risk aversion in leader’s minds, the battle is lost. Risk management is about improving decision quality, leading to a better world for all. Let’s dive right into my list of six risk management must-reads for 2020.

Psychology of Intelligence Analysis – Richard Heuer, Jr.

Richard “Dick” Heuer is a former CIA intelligence analyst who is credited with having a major contribution to improving the quality of analysis made by intelligence professionals by seeking to make sound judgments while dealing with the challenges of issue complexities, decision timeliness, and overall decision production. Some of his most notable work was studying the controversial subject Yuriy Nosenko, a Russian defector to the United States during the Cold War era.

The Psychology of Intelligence Analysis focuses on Heuer’s ideas on how to assist analysts in improving on the human mind’s limitations in dealing with complex problems which can involve ambiguous information, a multitude of parties, and fluid conditions. This book contains extremely valuable insight to help risk managers (or anyone in the risk management field) sharpen the analytical tools needed to assist stakeholders in making sound decisions backed by objective data. When risk managers can help business leaders question their reasoning, assumptions, and judgments, decision quality can become a competitive advantage. We all know when businesses make smarter decisions, they tend to win more than the businesses that do not.

“The mind is poorly ‘wired’ to deal effectively with both inherent uncertainty (the natural fog surrounding complex, indeterminate intelligence issues) and induced uncertainty (the man-made fog fabricated by denial and deception of operations).”

Against the Gods: The Remarkable Story of Risk – Peter Bernstein

Against the Gods is one of my favorite risk books and in my opinion, would be a first-ballot Hall of Famer if such things existed (it’s like the Jim Brown of risk books). As H. Wayne Snider is to the history of risk management, Bernstein is to the history of risk. His book masterfully takes readers through a journey to the beginnings of time when risk management was more attached with favors of the gods than something within the control of human reasoning. Starting with the Greeks’ understanding of risk and traveling forward through the mathematical discoveries of Pascal, Cardano, Galileo, and Bernoulli, this book provides a musuem-esque tour which every risk management practitioner should experience.

Throughout this book, Bernstein does a fabulous job transversing from giving a deep history lesson on risk quantification methodologies to exploring how psychological processes assist individuals improve reasoning when faced with limited time, information, or resources. This is a book I believe should be required readings for any risk management student and even current risk practitioners. There are so many tidbits of valuable knowledge throughout this book it has no other result than having a significant impact on anyone who picks it up.

“Nobody takes a risk in the expectation that it will fail.”

Thinking, Fast and Slow – Daniel Kahneman

This book is one of my favorites across any genre and another piece that belongs to the risk management Hall of Fame. Thinking, Fast and Slow dives deep into the workings of the human brain helping readers discover how they come to make the decisions they do daily. From decisions that do not require much intuition (System 1) to decisions that require much slower means of thinking (System 2), this book explains how the mind processes these decisions most of the time without our conscious awareness. Kahneman backs up his conclusions with an array of psychological experiments he and fellow psychologist Amos Tversky conducted in the 1960s.

This duo’s work explored the biases and failures in rationality consistently utilized in human decision-making. This book educates readers on numerous cognitive biases and mental heuristics which cloud judgment and leads to less than optimal decision-making. For risk managers who are required to make challenging decisions which impact the overall business, having the knowledge to identify these mental obstacles and being able to maneuver to sound judgment is a skill which is simply not talked about enough in or industry. However, it should be front and center. This book is so powerful it should be required reading for all risk management courses not just in the United States but globally. If risk managers make smarter decisions and teach business leaders to make smarter decisions through sharpened mental processes, the world will simply be a better place. I think you have to truly believe this.

“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.”

Risk Management – H. Wayne Snider

As Against the Gods looks into the history of risk, H. Wayne Snider’s book Risk Management gives a great overall history of the birth of risk management as a past necessity to manage business risks to a full-blown specialization which has grown to where it is now today. For those that do not know H. Wayne Snider, as the legend has it he is known as the “father of risk management” through his research and teachings at Temple University in Philadelphia. Now I may be a bit biased as I have been assisting in teaching risk management at this university for nearly a half-decade but do believe Snider is a pioneer in our field and one that deserves much credit for his actions.

Risk Management provides great context on the evolution of risk management and shows how many practices, methodologies and strategies used over a half-century ago are still relevant today.  From captive insurance to risk control, this book does a great job of explaining the integral parts of all phases of risk management. Although the book may be more tailored to traditional risk management due to when it was written, it still shows that risk managers must adapt to their current business climates in order to be truly effective and successful. In the South, we are always taught “never forget where you come from”, as a risk manager I must always pay homage to the trailblazers who have allowed me to become the risk professional I am today.

“The interests of the risk manager are everywhere, and our examinations are limited only by the imagination to which we attach our efforts”

Billion Dollar Losses – Paul Carroll & Chunka Mui

In the discipline of risk management, much attention is paid on colossal business failures to study how to prevent such events from occurring. From the Volkswagen scandal to the fall of Enron, studying past failures is critical to ensure we do not repeat history, especially when risk managers are tasked with making sure such failures stay within tolerance levels set by the board (or senior leadership).

Carroll and Mui’s book Billion Dollar Losses leverages their research of over 750 business failures to highlight seven of the biggest reasons companies meet their doom. Reading through this book you can find common trends among businesses that lead to their ultimate demise, from business integration to mental fallacies. This book provides so many real-life examples many readers will be able to shockingly see some of these risks percolating within their organizations, and this is good! If we are aware of our own vulnerabilities, we can act quickly to change them before it is too late. Billion Dollar Losses provides a well-architected blueprint on how risk managers can help senior leaders navigate the business failure minefield onto their way to achieving objectives. I highly recommend it to any risk professional.

“Our suggestion is not to be more careful. We believe that decision-makers must accept that the tendency toward errors is deeply ingrained and adopt explicit mechanisms to counter those tendencies.”

The Black Swan – Nassim Taleb

Nassim Taleb’s New York Times bestseller, The Black Swan, is, in my opinion, another literary masterpiece belonging in the risk management Hall of Fame. A book that helps every reader open their eyes to the uncertainty and sheer randomness that surrounds our everyday lives and decisions. Blindness to a complex, random environment is a disease that affects so many in today’s world, leading to disasters of epic proportions, black swans, if you will. From 9/11 to the global financial crisis of 2008, these events were not imaginable by some but in hindsight showed a trail of actions and decisions which led to their unfortunate arrival.

Taleb does a masterful job explaining how our minds are so feeble when it comes to predicting what is to come next, trying to simplify a complex world only to be disappointed with the catastrophic outcomes which can come next (‘the turkey story’ will explain this). Taleb brings to light the many fallacies that cloud our minds when presented with the information required to make sound judgments. For risk managers, these fallacies should not only be studied but reviewed religiously to ward off their existence in decision-making environments. Decisions lead to action, action leads to results, whether the results are positive or not depends on the context in which they were cultivated. The Black Swan is simply a must-read for any risk management student or professional.

“History is opaque. You see what comes out, not the script that produces events, the generator of history”

Wrapping Up

This article has gone through six risk management books I recommend for 2020. I believe these give a great overview of all areas of risk management with a focus on helping risk managers assist their organizations with making better decisions and using uncertainty to help drive innovation. Risk aversion is simply a formula for failure in 2020, these books will give risk professionals the knowledge they need to help improve decisions that take their businesses to the next level. I would love to hear about other risk management books out there which are must-reads for 2020, I am always excited to find a new risk gem I can snag for myself. I wish all a prosperous and fortunate 2020, now let’s get to reading!