This time, it’s war: why war-gaming is essential for risk managers

War-gaming scenarios should be an essential part of any risk planning by the C-suite but ironically it is the CRO and its risk team are most resistant to being challenged.

So says former top NATO general Sir Richard Shirreff, co-founder of global risk advisory firm Strategia Worldwide. 

Organisations need to war-game potential disaster scenarios as a core strategic tool, said Shirreff, as regular crisis drills to build operational “muscle memory”, he said. War-gaming is just as relevant to the corporate world as to the theatre of war. That way, business plans need to be continually revised against evolving geopolitical and systemic shocks. 

Shirreff was speaking at a corporate resilience seminar hosted earlier this month by specialty risk analyst Russell.

“War-gaming is a well-established military technique,” Shirreff told the audience of risk professionals. “No operation should be launched without war-gaming.

“Any company that wants to grow under the complexity in the circumstances we’re facing at the moment, I think war-gaming is an indispensable tool.”

Shirreff, who currently advises the commander-in-chief of the armed forces in Ukraine, said war-gaming gives an organisation a competitive advantage because it identifies opportunities, which are the flip sides of threats and risks.

“[The world] is in the foothills of what could be a global conflict.”   

In a gloomy assessment of the current geopolitical situation, he said the closure of the Strait of Hormuz will continue for at least another year and possibly beyond. He did not see any resolution until President Trump leaves office as “the Iranians know they have him over a barrel”, in a situation with echoes of Iran taking Americans hostage in 1979 – which was only resolved once President Reagan became president.

And he saw China’s takeover of Taiwan as “inevitable”, whether by force or not, and went further, saying the world “is in the foothills of what could be a global conflict”.    

Russell managing director Suki Basi said the geopolitical chaos business now faces shows no sign of going away so, given the limit of what governments can do, it is important that organisations develop their own resilience strategies.  

War-gaming, said Basi, gives executives a much more realistic experience, “feeling it properly” rather than being a cerebral exercise “to actually understand what will happen to the organisation”. 

As to how to put war-gaming into practice, Shirreff, a former NATO deputy supreme Allied commander Europe, recommended splitting participants into two groups: a “red team” probing for corporate weaknesses (in short, the enemy) and a “blue team” defending themselves under attack. 

And the red team should include the most anarchic, lateral freethinkers in an organisation, those prepared to challenge the plan, not just senior leaders, mimicking how enemies probe for weak spots.

He said: “The purpose of the red team is to role-play effectively the enemy, while the blue team are friendly forces.”

And bringing on outsiders who can challenge corporate groupthink is also important. Introducing those who can be the grit in the oyster that produces the pearl is key, said Shirreff, otherwise “you’re just confirming your own bias”.

However, it is often the chief risk officer and his or her team who are most resistant to having their thinking challenged, he pointed out. 

Quoting General Eisenhower, who said that the plan was not as important as the planning, Shirreff stressed that plans can change as scenarios unfold. 

“Any plan has got to be adjusted to meet the circumstances it faces… it’s a constant hand on the tiller to change things as circumstances change.”

As in a game of chess, each move is analysed, then responded to. An umpire then decides which strategy or countermove is likely to succeed. Once the game is over, the blue team takes away what it has learned, putting mitigations in place. 

Shirreff said the important thing was to ensure that crisis management policies and plans are in place, well understood and practised “just to establish that… intellectual muscle memory, so that when the crisis hits, you're better ready”.

Strategia recently ran a war-game with an Australian mining company with a red team that combined corporate insiders and outside experts. Two war-games were run: one on the demand side, the other on the supply side.      

“Nobody can foretell the future… you may have the most sophisticated risk management system… but you can’t tell what’s going to happen, and this war-gaming approach allows you to think laterally… identify the unknown unknowns,” Shirreff summed up.

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