November 2017
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Case – Probability vs. Vulnerability (Processes)

At the prompting of their board, a small investment company managing a large amount of money hired a consultant firm to review their processes. The consultants immediately uncovered that there were no formal processes, nor a concern about their absence. The dozen or so employees knew their jobs, knew who was responsible for what, and saw no real need to formally define everything. Everyone trusted each other implicitly.

The lack of documented processes, however, presented huge risks of which the firm was entirely unaware. Basic safeguards on the transfer of funds such as countersigning did not exist. Most of the individual staff members were the only people who knew how to do their jobs – indeed most where the only people who knew exactly what their responsibilities were. The lack of task redundancy amongst employees, irritating when it meant that certain people had to be present to close the books every month, was potentially disastrous in the case of an accident or illness – or fraud.

All of this meant little to the staff because this was the way things had always been done. The board was wiser. They realized that they were not only leaving the firm vulnerable to risks that could bankrupt the company, but that the board very likely were leaving themselves vulnerable to being held liable for any losses. The absence of prior losses did not guarantee their future absence.

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