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Second-order derivative: Difference between revisions
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In risk management, the [[first-order derivative]] of an event “ƒ” is the effect that event would have, were it to actually happen in the practical world. So, for example, | In risk management, the [[first-order derivative]] of an event “ƒ” is the effect that event would have, were it to actually happen in the practical world. So, for example, | ||
The [[second-order derivative]], of function ƒ is a derivative of the [[first-order derivative]] of that function. So, for example, the warning light on a control panel, the [[RAG status]] indicator on a [[Middle management|management]] [[PowerPoint]], or the numerical quantity of an item whose ''quality'' one doesn’t have the [[subject matter expert]]ise to assess. | The [[second-order derivative]], of function ƒ is a derivative of the [[first-order derivative]] of that function. So, for example, the warning light on a control panel, the [[RAG status]] indicator on a [[Middle management|management]] [[PowerPoint]], or the numerical ''quantity'' of an item (completed ISDA [[negotiation]]s); reviewed legal [[netting opinion]]s) whose ''quality'' one doesn’t have the [[subject matter expert]]ise to assess. | ||
Operations people deal with ''actual'' risks; [[legal eagle]]s tend to deal with [[first-order derivative]]s of those risks — what the consequences are if the risk comes about — and [[middle management]] | [[Operations]] people deal with ''actual'' risks; [[legal eagle]]s and fellow [[Controllers|controller]] [[subject matter experts]] tend to deal with [[first-order derivative]]s of those actual risks — what the consequences are if the risk comes about — and [[middle management]] and [[internal audit]] deal with [[second-order derivative]]s of risk: what the [[RAG status]] on the [[opco]] [[dashboard]] should look like if the risk comes about, and what should happen if that template is not reviewed within the six-month time limit arbitrarily prescribed by some policy somewhere. | ||