Within statistics the problem of ruin is well known. Imagine that one in twenty plays in a casino lead to financial ruin, i.e. you lose everything you have. That would mean that if twenty people play one night, one of them would probably be financially ruined. Or, to make matters worse, if you play for twenty rounds, it is highly likely that you will be financially ruined.
How is this relevant for football clubs? Well, in most leagues we have eighteen, sometimes twenty clubs. Each year a couple of clubs are relegated. Relegation in most leagues means something close to financial ruin. Especially, if the club is unable to be promoted straight away in the next season. Even though clubs being relegated from the Premier League get financial support, if you look at the names in the Championship, you can see some pretty well known clubs like Watford, Stoke and Huddersfield. What happened?
The point is that even quite a low probability of hiring bad players, gives you quite a high chance of being relegated once every twenty years or so. Of course, for clubs who have less budget this chance is much bigger as they have a higher probability that they hire lesser players. Especially if they have just been promoted. And thanks to the winter transfer season, rich clubs have the opportunity to go on a spending spree and repair the damage of the original bad hires.
Yet, it goes to show how important good decision making is when it comes to hiring players. The problem of ruin shows that small mistakes can have big consequences. The best way to do risk management is to get as many different scouts, data sources and consultants to agree on the player to hire. The more disagreements the bigger the risk. At the same time, it is important to make sure that different data sources are indeed different and not just presenting the same data in different formats. The same goes for live, video and live scouts. If they suffer from the same biases then the risk increases. If the head of scouting or the head of recruitment is a dominating person it is well possible that he forces the group into group thinking, again increasing the risk of bad hires.
Scouts get a lot of social status as working for a club. Often it is hard to see whether the success of hired players is a matter of scouting skill or happenstance, i..e. luck. If lucky guesses give a club too much confidence in only a few opinions, then again risk increases. All of these small increments to the overall risk, also increase the probability of ruin. It might not happen for decades, but all of a sudden a famous club is relegated and they are in big financial problems. Only because they thought that had the risk of bad hires under control where in reality there still was a small chance of hiring bad players. Unfortunately, even small chances lead to ruin in the long term.