Things Change, Remain the Same

 

True story – when I was preparing for my all-day Certified Cost Consultant (as it was then known) examination, I knew that of the four 2-hour tests, two of them would be open-book, and one of those would deal with risk management. Since both my wife and I were MBAs and had retained all of our textbooks, there were several tomes on statistics or quantitative analysis in business to choose from that would provide the distribution tables I needed. The night before the actual exam, though, it had snowed, and snowed a lot. I woke up in a frenzy to get on the road an hour prior to the time I had originally planned to leave, and simply grabbed one of the aforementioned textbooks from that part of a bookshelf as I blitzed out the door.

I felt good about the test as I came home that evening, and thanked my wife for letting me borrow her quantitative analysis in business textbook.

“That’s not mine. I thought it was yours.”

“It’s not mine” I replied. I looked inside the title page – it was published prior to the outbreak of World War II. How it arrived on one of my bookshelves and was placed among our other textbooks is beyond me; but, since I passed all four parts of the test on my first sitting, there was no harm done.

But it did get me to thinking – have the management sciences been so slow to truly advance that someone versed in 70-year-old techniques would not only fit in today’s management environment, but actually advance and thrive, as evidenced by acquired certifications?

Accounting based on the double-entry bookkeeping model has been around since 1494, when Henry VII was King of England, Columbus had just returned to Spain with news of the New World, and Niccolo Machiavelli was 25 years old. Its basic structure has changed little in the intervening 520 years, so I kind of get a kick out of contemplating what Cameron of the McGaughy Clan in 1494 would have received back from his tribe of contributing scribes for ProjectManagement.scroll had he sent them notices asking for their takes on the future of management science back then. “Are’st thou kidding?” I would have quilled. “Once one knowest the wisdom of the balance sheet and profit-and-loss statement, no other business knowledge will be requiredst! Ever!”

I think the two major aspects of the future of the management sciences rest on the following assertions: the technology will advance, but human nature will remain the same.

Most investment houses hire a team (if not an army) of data-savvy analysts (“quants”) who pour over vast amounts of information, repeatedly testing the limits of the accuracy of the saw “correlation is not causation.” Should they find an apparent link, like, say, jellyfish biology to human life expectancy, they will exploit it to its limits for as long as the link is perceived as valid. Like I said, the technology will advance, but human nature will remain the same. It’s why Shakespeare’s works live on as masterpieces while the medical writings of his time – calling for bloodletting and leech-applying – are now considered an embarrassment to the profession.

As for my predictions, I do believe that, eventually, the overextension of the data streams emanating from the general ledger and current risk management theory will be recognized; the GL we will have with us forever (or at least as long as governments need tax revenue, which is the same thing), but the risk managers are vulnerable to having the efficacy of their techniques challenged. Nassim Taleb, in his best-selling book The Black Swan, the Impact of the Highly Improbable (Random House, 2007) makes the case against overuse of Gaussian Curves in business analysis so strongly that I’m surprised that risk management hasn’t seen a significant epistemological retreat since its publishing.

But, until such a correction in the widely-accepted management sciences occurs, it remains a safe prediction that this blog will continue to poke fun at our friends, the accountants and risk managers!