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Risk: Difference between revisions
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**'''reject''' it — if you can’t price your risk into your offering (and pass it to your clients) don’t take the risk in the first place — even if that means not doing the business at all. No risk, so no insurance. ''Either way, don’t buy insurance''. No need for a risk manager <br> | **'''reject''' it — if you can’t price your risk into your offering (and pass it to your clients) don’t take the risk in the first place — even if that means not doing the business at all. No risk, so no insurance. ''Either way, don’t buy insurance''. No need for a risk manager <br> | ||
*'''Tail risks''': Tail risks are, in principle, insurable. But still you’ve got some questions. How big is the risk? How bad would any risk event be? If it is containable in size given your volume of business (a toaster you use every day blows up once in five years) then take the risk. Again, it's just a cost of business. This is no different in impact to a quantified daily risk. If it is a potentially catastrophic then you ''still'' have some questions. Is the business worth it? Have you priced it correctly? How effective is your insurance? Will the {{risk|risk controller}} get it right? Will she protect against the risk? Are you sure? | *'''Tail risks''': Tail risks are, in principle, insurable. But still you’ve got some questions. How big is the risk? How bad would any risk event be? If it is containable in size given your volume of business (a toaster you use every day blows up once in five years) then take the risk. Again, it's just a cost of business. This is no different in impact to a quantified daily risk. If it is a potentially catastrophic then you ''still'' have some questions. Is the business worth it? Have you priced it correctly? How effective is your insurance? Will the {{risk|risk controller}} get it right? Will she protect against the risk? Are you sure? | ||
===Asymmetry of outcomes=== | |||
*'''Before it happens''': before it happens, a risk has a positive value, albeit (if it is an [[unknown unknown]], one that is difficult or impossible to quantify. | |||
*'''It is is avoided''': A {{risk|risk}} that passes untriggered, has no value. It is like an [[option]] you wrote that expired [[out of the money]]. | |||
*'''If it happens''': If the risk comes about but the {{risk|firm}} has successfully protected itself against it, again it has no value. The firm’s resulting profit and loss is flat. If the the firm has ''not'' defended against it, then notionally, someone is responsible. But see diffusion tactics – here the primacy of the {{risk|individual}}’s survival instinct over the {{risk|firm}} kicks in. | |||