Risk versus vulnerability

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Accidents will happen. Four strategies for coping: three focus on the accident, one focuses on your organisation.

Accidents

• Dealing with accidents:

• Respond to accidents when they happen
• Limit damage accidents can cause
• Minimise chance that accidents happen

Reaction	Damage Limitation	Avoidance
Closeout Event of default Breach of contract	Trade monitoring Red flags Good data	Due diligence Relationship management Credit lines
Chaos Fog of war Panic Urgency Volatility Fear Lack of information Compounding effect of above

Vulnerability

• Dealing with your organisational model: Assuming accidents will happen, reduce vulnerability to them. Vulnerability comes in the form of unusual concentrations:

• Concentration of energy — in a financial services firm, call this financial risk, or profit-and-loss generators

A:*Concentration of population — different modelsof distributed network. Compare “hub and spoke” models like airports (fragile — take out a hub and large parts of the system are inoperable) with “multiple-node” networks like the internet (robust — take out a node and everything can flow a different way).

• Concentration of political/economic power— increases the vulnerability to harm from executive failure.