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Jumping onto the Brazilian Marketplace: Managing Risk and Reward in Latin America´s Powerhouse
By Jonathan Kendall, CEO, Total Security Solutions, Rio de Janeiro, Brazil
Jumping onto the Brazilian marketplace makes great economic sense but it can be risky if done without proper risk management and security measures. Jonathan Kendall, senior partner and analyst for Total Security Solutions in Rio de Janeiro and his team discuss current trends in management risk, security and potential rewards while offering practical techniques for securely managing your business and life todays Brazil.
Brazil is an exciting and fun location, one with unlimited potential for profit and advancement. Because of this opportunity and money, and a number of other cultural and political reasons, Brazil is also a hot-bed for crime and corruption at many levels within the society.
As a foreigner coming to Brazil to is important to understand the risks and the rewards for a successful integration of your products and services. Chief among your issues is managing the variety of unique risks and threats. We will explore some ´why´s and how´ that may assist you in your business.
Solving the Wrong Problem
Regularly, one can solve the wrong problem, and then believe they have a very secure system, when, in fact, they have opened themselves to a new world of risk and liability. This happens constantly in Brazil and much of the answer lies in psychology, not the psychology of the attacker, but of the leadership, the people charged with ultimately protecting the business community. Both the private and public security sectors are unable to see the issues for what they really are.
To help explain this, there is the field of Prospect Theory or the way people really look at risk-related activities. It is common for people to believe that their decisions about risky situations are based on clear logic and the best possible outcomes for all. But many times, that is not the case.
Prospect Theory was developed by Nobel Prize winner Daniel Kahneman, and Amos Tversky in the late ´70´s. They wanted to explain how people make trade-offs that involve risk. Before this theory was explored, most people around the world thought these decisions were made by the "rational man," a reasonable person who makes trade-offs based on logical calculation. This work made clear that real people act very differently in relation to risk.
Heres an experiment that illustrates Prospect Theory. Gather a group of people and divide the group in half. Ask one group to choose between these two alternatives: a sure gain of $1,000 or a 50% chance of gaining $2,000. Ask the other group to choose between these two alternatives: a sure loss of $1,000 or a 50% chance of losing $2,000.
These trade-offs are very similar, and traditional thinking predicts that whether youre considering a gain or a loss doesnt make a difference, people make trade-offs based on a straightforward reckoning of the relative outcome. Some people prefer sure things while others prefer to take chances. Whether the outcome is a gain or a loss doesnt affect the process and therefore shouldnt affect the results. This old, traditional thinking is called Utility Theory.
Unlike much psychology, Prospect Theory has a solid, researched basis. And unlike the expected Utility Theory, which concerns itself with how decisions should be made (a prescriptive approach), Prospect Theory concerns itself with how decisions are actually made (a descriptive approach).
The Prospect Theory research contradicted Utility Theory. When faced with a gain, about 85% of people chose the sure-thing but smaller gain over the higher risk but potential higher gain. They chose the sure-thing. But when faced with a loss, and this is where it gets interesting, about 70% chose the higher risk and potentially larger loss over the sure smaller loss. More people chose the higher risk, potential higher loss alternative.
This experiment, repeated again and again by many researchers around the world was overwhelming. This flew in the face of logic and reason! Prospect Theory supports the fact that people have different views on their chances for gains and losses. A "sure thing" is better than a chance at a greater gain, or "A bird in the hand is worth two in the bush." While the chance at a bigger loss is better than the sure-thing loss. Amazingly, we tend to be risk-averse when it comes to gains and risk-seeking when it comes to losses.
This bias is so dominant, even for the most conservative, that people can do some pretty illogical things. In the context of business leaders, its a choice between a small sure loss the cost of the security analysis and plan and the required security systems, procedures, and solutions and a large, high risk loss the results of a gunman`s attack on the executives or the loss of sensitive business data to industrial espionage.
In context, people must understand how and why the solution will work, they have to understand the threats against the institution, property and people, and they need to understand the true risks of something bad happening. But all things being equal, they will take the risk that the attack will not happen, rather than suffer the sure (but small) loss of revenue that comes from planning and implementing a well-conceived, structured security solution. That`s the Prospect Theory in action.
Business people generally try to frame their organization in a positive light and hope that nothing will happen, and this can lead to solving the wrong problem. True Prospect Theory thinking.
Safety Theater
Sometimes, administrators will engage in some form of "Safety Theater" or "Security Dramatics". They do something flashy to show everyone that they are taking steps to protect their business and community. Businesses install biometrics, armed guards, loudspeakers to shout a warning, alarm systems, video cameras, and HELP kiosks. Some bosses want a single-push panic button to alert everyone but they are not always sure of what. This is Safety Theater, the capacity to show in a grand and dramatic way that they are working to protect and serve.
But it is sometimes a desperate attempt to overcome the natural tendency to resort to Prospect Theory. And often it is just the implementation of a single fallible system. They are taking the risk of buying a security system sold to them by a security salesman or the security guards, and take the larger risk of a large scale attack that the newly-implemented security product may not even stop. Most people have not even studied the assets they are to protect, potential attacks, or the real risks. They start in the middle of the problem and work both ways. They start building security silos or stand-alone, non-integrated security products with products or systems that look good but may not work together. In fact many of these products actually hinder the operation of other security products and can put the institution and its people at an even higher risk.
Lone wolf gunmen, kidnappers, assailants, rapists, even identity thieves and cybercriminals are very focused on the foreign business community in Brazil. It is a real money-maker. It´s an easy or "soft" target with a few highly-touted but often easy to work-around security people, products and procedures. They are very high profile and some of the most heinous attackers do it just because it will "make them famous". Security is, for the most part, not well organized or thoroughly thought out. It is the Hail Mary, hope-for-the-best mentality that so clearly exemplifies the Prospect Theory.
There was a recent security survey published that explored safety issues sponsored by a company called CDW-G, which sells products. This was a self-survey by, in this case educational, institutions who answered questions presented to them about their institutions. Even educational colleagues admit to a problem. About 39% of respondents indicated that their physical security needs improvement. If we apply Prospect Theory, and the fact that the respondents are the very people charged with implementing security and managing risk they might not have an independent view of the subject. And they may want to save their jobs it could be argued that the results are skewed downward. The actual room for improvement for physical and cyber security may be much higher. We should not make another attack the proof of the need for improvement.
The business leadership of the companies coming to Brazil needs to take the reigns of security from the guards, the contractors and the vendors. Your business viability depends on taking responsibility now, not making excuses later.
Frequently the company relies on the workers, the security personnel or uniformed guards to "get it right". Too often they do not have the training or the background to understand the relationship between assets, risks, solutions, and the unintended consequences of the interaction between privacy, access, costs, probability, risk, law, deterrence, civil rights, workers responsibilities, appropriate response, and the lives and well being of employees, clients, contractors and corporate leaders. All of the variables required to gain an unique solution for your institution are in-play and must be properly managed to control costs, enhance profit and grow the business.
As corporate leadership, do not abdicate control of your security based on Prospect Theory, do not take chances with your most precious resource…your customers, products and staff. Security and risk are fundamentally a negative issue, and people do not like to be negative. The leadership must step up and guide the implementation of physical, electronic and cyber security across the continuum of the business environment. A risk management team must be created that understands the environment and culture of Brazil. The team must possess the internationally experienced and trustworthy members who can explore and analyze the interaction of security, legal, financial, crisis mitigation, disaster recovery, local and national governmental, criminal organization recognition, espionage, lose prevention, and critical quality, security, safety and health related issues. Do not risk the lives and valuable assets of your organization out of ignorance, act now, and act correctly.
Jonathan Kendall is the CEO and a Founding Partner of Total Security Solutions, a professional services and consulting firm specializing in the convergence of technology, security and management. Kendall has 20 plus years of experience serving the business community around the world. He has been a featured speaker at the Darden Graduate School of Business, the AIA and SCUP national conventions, and has written numerous articles. He is a registered private investigator and certified security officer, and has five years teaching experience as an instructor to the US State Department and US Special Forces. Please contact Mr. Kendall via email jonathan@ProtecaoTotal.com or visit www.TotalSecuritySolutions.com.br. |
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