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Evaluation and Control Program Warning Flag 1 – The Illusion of Accuracy

Evaluation and Control Program Warning Flag 1 - The Illusion of Accuracy | StrategyDriven Evaluation and Control Article | Warning Flag“Measure with a micrometer, mark with a crayon, and cut with a chainsaw”
Author Unknown

Evaluation and control programs provide executives and managers with the critical information they need to make effective business decisions. However, an equally critical component of the decision-making process is the understanding that no data-set is a perfect reflection of reality. Therefore, it is important for business leaders to recognize the potential inaccuracies associated with their data in order to fully assess the risks these flaws pose to the achievement of desired outcomes.


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The following StrategyDriven recommended best practices are designed to reduce the likelihood leaders will receive data presented with an exaggerated accuracy.

Decision-Making Warning Flag 1b – Weak Analogies

StrategyDriven Decision Making Article | Decision-Making Warning Flag 1b - Weak Analogies“The fallacy of Weak analogy is committed when a conclusion is based on an insufficient, poor, or inadequate analogy. The analogy offered as evidence is faulty because it is irrelevant; the claimed similarity is superficial or unrelated to the issue at stake in the argument. Or the analogy may be relevant to some extent yet overlooks or ignores significant dissimilarities between the analogs.”

Paul Leclerc
Community College of Rhode Island

Citizens have been asked to cast their vote for a referendum requiring those seeking to purchase a hammer to undergo a registration process similar to that for firearms. Supporters argue that because hammers, like guns, have metal parts and can be used to kill people that these tools should be legally controlled as guns are. These proponents are using a Weak Analogy to advance their position.

Weak analogies are used to support business decisions every day. As with all logic errors, decision-makers fall prey to the appearance of reasonableness, especially when the position supported justifies their desired course of action. Although difficult, recognizing and eliminating the use of Weak Analogies in decision-making is absolutely necessary.


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Additional insight to the warning signs, causes, and results of logic errors can be found in the StrategyDriven website feature: Decision-Making Warning Flag 1 – Logic Fallacies Introduction.

Decision-Making Warning Flag 1a – The Gambler’s Fallacy

StrategyDriven Decision-Making Article | Decision-Making Warning Flag 1a - The Gambler's Fallacy“The Gambler’s Fallacy, also known as the Monte Carlo Fallacy, is the false belief that the probability of an event in a random sequence is dependent on preceding events, its probability increasing with each successive occasion on which it fails to occur.”

Gambler’s Fallacy
Wikipedia

Seated at a roulette table, a gambler must decide on what color to place his next bet, red or black. He knows there is a 50 percent chance of getting either red or black and that the first four spins of the wheel yielded all reds. The gambler reasons that because half of all spins should result in black and the first four were red, it is more likely the fifth spin of the roulette wheel will be black and places his bet. While his logic appears reasonable, the roulette player has just fallen victim to the Gambler’s Fallacy.


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Additional Information

Additional insight to the warning signs, causes, and results of logic errors can be found in the StrategyDriven website feature: Decision-Making Warning Flag 1 – Logic Fallacies Introduction.

Decision-Making Warning Flag 2 – The Silent Nod

StrategyDriven Decision Making Article | Silent NodAll too often it is not clear to executives and managers that they are in a decision-making situation. In many of these instances, they find themselves attending a briefing during which the presenter makes a recommendation for which he or she is seeking approval. As the presentation goes on, the briefing attendees listen attentively and nod silently. No verbal decision is communicated but the nodding continues. At the end of the presentation, the presenter is songs adulated for making a thorough presentation and providing an insightful recommendation. There is applause. Exiting the meeting, the presenter remembers the affirmative statements and, most importantly the silent nods. These now become the unintended affirmative decision the presenter sought and the leaders failed to recognize they were making.


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How to deal with cyber-attacks: publicly or privately?

StrategyDriven Risk Management Article | How to deal with cyber-attacks: publicly or privately?Cyber attacks spiked 164% in the first half of 2017, compared to the same period in 2016, entailing 918 disclosed breaches-according reports on broadcaster CNBC. Threats vary from sector to sector. Healthcare, for example, is more susceptible to crypto-locker ransomware like the infamous WannaCry.

Internet-connected consumer devices often fall prey to malware that shackles them to remotely controlled botnets such as Mirai. Varied though the threat may be, and staggering though these numbers are, the word disclosed highlights a central paradox: While transparency contributes to the overall fortification of cyber-security protocols and procedures, battening down the hatches presumably mitigates further financial risk.

Sure, a disclosure is immensely beneficial in terms of buttressing industrial safeguards, national and global security, and customer protection – not to mention mitigating the longer-term repercussions of an attack – but so too can disclosure exact lasting damage on a bottom line.

Fighting back

The nature, intent, and consequences of an attack notwithstanding, the way companies have responded to breaches is closely related to their designation: public or private. CFOs at public and private companies face different risks and pressures when it comes to cyber-security and disclosure, and exhibit divergent perspectives when it comes to preparation.

Broadly speaking, public company CFOs are more likely to outsource cyber-security to third-party firms, while private CFOs tend to invest in in-house IT teams. Regardless of who secures a company’s network, breaches are often known by CFOs before they are made public. By disclosing a breach, CFOs of publicly traded companies might trigger investor panic and sell-off, whereas private company CFOs risk irreparable harm to consumer and employee confidence.

On one hand, foreknowledge of pending disclosures can put unique pressure on public company executives, who often own considerable amounts of company stock. The ongoing federal investigation of three Equifax C-suite managers for insider trading arose due to alleged stock dumping prior to the revelation of the company’s catastrophic cyber-attack.
Equifax underscores the tension between a public corporation’s responsibility to its board, shareholders, and customers, and the financial implications of both the breach itself and legal requirements governing its reporting and remediation.

On the other, while private companies aren’t under the same legal obligations in terms of disclosure, and while the short-term consequences may be less impactful, these companies still face long-term pitfalls, such as lost trust and tarnished brands. Moreover, a medium-sized business may not have the capital or reserves to recover reputationally or financially after a major data breach the way a multinational corporation can.

Additionally, the moderate scale of many private companies sometimes instills a false sense of security. Middle-market businesses often assume they’ll be overlooked by attackers, whether due to a large number of similar companies, or a lack of enticing assets. After all, isn’t it the bigger fish that stockpile the type of data and info that hackers tend to target?

Be prepared

A lack of proper preparation only exacerbates the panic once an attack does occur. Attempting to deal with an attack on the down low can earn private enterprises a reputation as easy marks, and provoke subsequent attacks. Further, if the rearguard strategy backfires, or is exposed by the press, this can amplify the damage to a company’s brand and leadership, not to mention potential legal consequences if a court can prove negligence.

In terms of the bigger picture, the lack of reliable data pertaining to attacks on private companies leads to lopsided analysis regarding the multifaceted aims and motives driving these attacks, resulting in a sort of half-finished portrait of the threat landscape.

While cybersecurity prevention could be vastly improved by greater information sharing, some surveys of CSOs indicate that only one in seven attacks are reported to authorities. Alas, as it stands, adequate event modeling, and risk and security assessments, are being stymied by a lack of shared intel on private company breaches, effectively hampering the development of comprehensive prevention and management strategies.

This lack has precipitated the introduction of numerous cyber-security regulations around the world, and though the regulatory ecosystem is in a state of flux, the global trend is invariably toward greater transparency. CNBC notes that “governments around the world are introducing legislation which will force more companies to disclose data breaches,” a reach that already extends to private enterprises.

Regulatory environment

Both private and public companies are compelled to comply with local, national and global disclosure regulations, including Sarbanes-Oxley (SOX), the Health Insurance Portability and Accountability Act (HIPPA), and the EU’s General Data Protection Regulation (GDPR).

The GDPR, which regulates the collection and storage of customer information and data, and can levy fines of up to €20 million, requires that private companies disclose if they have a footprint in Europe, or otherwise handle the information of European citizens.

In the US, Sarbanes-Oxley (SOX) indexes the responsibilities of both public and private companies, including rules pertaining to compliance with federal prosecutors, and criminal penalties. Further, HIPAA governs how any company, public or private, handles personal health information.

Though public companies, traditionally, may have shouldered an inordinate amount of the fallout from disclosure, this has left them better readied for the implementation of legislation designed to enforce transparency. Even more advantageous, public companies now have hard-won practice mitigating the financial risks and ramifications resulting from disclosure.

Private companies, by contrast, are less aware and agile in terms of prevention and response; protecting their brand, for example, or proactively communicating with clients. Simply put, having been in battle, public CFOs are stepping up and getting more involved with cyber-security, while private CFOs, hovering on the sidelines, appear far more circumspect.

Make no mistake: this problem is only getting worse. The situation could improve rapidly if execs from companies of all stripes and sizes shared details of attacks with the larger corporate community.

Whether you are a CFO of an international, publicly-traded conglomerate, or a mid-sized regional business, it is well within your portfolio to do everything possible to properly prepare for the threat. Engage with the board, secure funding for proper security controls, and encourage leadership to be forthcoming when not if, your company’s cyber attack occurs.


About the Author

Andrew Douthwaite has over 17 years of technology experience joining VirtualArmour in 2007 as a senior engineer. Now as Chief Technology Officer, Andrew focuses on leading growth in the managed security services business and ensuring VirtualArmour is a thought leader in the security industry.