What the FIFA World Cup Teaches us about Risk Management

Late last week, the FIFA Executive Committee met in Zurich, voting to ban third-party ownership of players and hearing presentations from several committees within the organization.  Today’s post reminds us of some of the greatest lessons risk management professionals can take away from this summer’s World Cup.

Even if you are not a Futbol fan, or soccer fan as we know it in the U.S., you no doubt paid attention to the progress of the U.S. team’s successes in the World Cup in Brazil.   The excitement of play and the exacting analysis of TV commentators is interesting to watch, but hard to follow in part because of the complex scoring system used in the FIFA World Cup standings.

In an attempt to better understand how the World Cup scoring system worked, I went right to the source, FIFA.com.

First of all, let me say that the scoring system and world rankings of teams who compete in the FIFA World Cup is stunningly complex.  Here is the formula used to calculate points for the FIFA World Ranking:

P = M x I x T x C x 100.

• Points for a victory (3 pts. – Win; 1 pt. – Draw; 0 pts. – loss)
• Importance of a match (Friendly – 1.0 pt.; World Cup qualifier – 2.5 pts.; Continental final or FIFA Confederation Cup competition – 3.0 pts.; and, World Cup final – 4.0 pts.)
• Strength of opposition [200 – ranking position of opposition / 100]

Only the top 149 teams are assigned a value of 2.00; All other teams receive a minimum weighting of 0.50.

• The strength of a confederation [There are six separate confederations which are each given a weight from 1.00 – 0.85 after each FIFA World Cup event]

Based on the complexity of the scoring system, one would assume that the brackets in the World Cup would be determined by which teams ranked highest.  One would be wrong!  The ranking system appears to simply determine the 32 qualifying teams who will compete in the World Cup.

A Final Draw is conducted of the 32 teams to decide which team is placed into one of four groups which must then be re-balanced after the draw to sort out the correct number of teams placed in each group of play. Once the competition begins, an even more confusing system is used to determine who advances in the World Cup.

Here is how it works: The two teams with the most points in each group make it to the round of 16.  If teams are level on points, the first tiebreaker is goal differential.  The next tiebreaker is goals scored.  If that number is the same, then the result of the head-to-head match is the determining factor.  If the head-to-head game ended in a draw, then finally, lots are drawn.

Got it so far?

How could an archaic and complex system like this have anything to do with risk management?  Well, if your risk assessment program resembles this scoring system, you know you have a real problem.

It is no wonder that at least one of the groupings earned the moniker, “The Group of Death.”  This is when one group is selected with an unusually heavy weight of top competitors. The U.S. team found itself in the Group of Death and almost escaped, defying the odds.

So what are the lessons for risk managers?  First of all, complex or elaborate risk scoring systems do not result in better outcomes.  If you can’t easily explain how you assess risks to senior management, you may have created a “FIFA.”  Complexity does not ensure accuracy, and in many cases it may hide the weaknesses inherent in your risk assessment program.

Next, complex risk systems may unintentionally predetermine outcomes because of a bias the designers used in determining what should rise to the top.  I am not suggesting that FIFA has rigged the outcome of World Cup events; others will judge the fairness of the system for themselves.  What I am saying is that over-engineering a process tends to incorporate a bias or the inherent biases of designers into the ultimate outcome(s), whether they are aware of it or not.  When designing a process to assess how results develop over time, the program design should err toward capturing randomness as opposed to assumed outcomes based on past experience or fairness.

Don’t create your own version of a “Group of Death” simply because you know these risks exist.  FIFA-proof your risk program to gain credibility with senior management and ensure that you haven’t predetermined the risk outcomes in your program.

Futbol may never be as popular as American football or baseball in the U.S., but you have to admit that some of the matches were exciting to watch, especially the drama of the U.S. team or your other favorites in the World Cup!  Gooooooooaaaaaaaallllllllll!