Upfront News
CONNECT the dots The Financial Systems Thinking Innovation Centre, or FinSTIC, launches this month. But what is systems thinking, and how can it help actuaries? Ashok Gupta explains
O
ne dark night, a policeman finds a drunk on his knees searching for his keys under a lamppost. The drunk explains that he lost the keys on the other side of the street, but is searching under the lamppost because “that’s where the light is”. We all operate in silos – whether that’s a department, a business or an industry sector. Inside our silo, the light is bright and we have good visibility. Outside the silo, it’s darker, and visibility is poor – so it is easier to find solutions and identify risks inside our own silo than it is to find those from outside.
However, our silos do not operate in isolation. They form part of a network, connected to other organisations, suppliers, customers and governmental bodies, such as regulators. In an increasingly connected world, understanding the linkages between our silo and others is essential if we are to manage exogenous risks, develop sustainable organisations and products, and implement effective policy solutions. Organisations operate in a complex, crowded, integrated and rapidly changing world, resulting in many emerging risks, some difficult to mitigate and others difficult to spot. Consequently, it is easier for us to look for solutions within our own silos –
but are we searching for our keys on the wrong side of the street? Systems thinking may help.
What is systems thinking? Donella Meadows, for many the doyenne of systems thinking, defined a system as “an interconnected set of elements coherently organised in a way that achieves something”. It comprises those elements, interconnections and a function (or purpose). A company is a system; so is a tree, a factory or an economy. However, our world consists of systems embedded within other systems. While a company is itself a system, it also resides within an industry system, which in turn resides
Podcasts Listen to FinSTIC podcasts covering a broad range of topics around systems thinking. Learn about how systems thinking has been applied by Chika Aghadiuno and Neil Cantle to implement a new emerging process at Aviva, and how Professor Doyne Farmer at iNET has used agent-based modelling to assess the impact of Solvency II on catastrophe insurance.
“Systems thinking is an important part of the 21st century actuarial toolkit. We believe it offers a fresh perspective on traditional actuarial challenges that lets us engage constructively with the increasing complexity we see around us, rather than see it as a barrier to achieving our goals” www.theactuary.com
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