What Can You Control?

Framing is of vital importance in identifying risks.
Risks need to be framed in a way that you CAN actually control them.  If you say that your major risk is a drop in the stock market, then you are framing that risk as something that you cannot control.

If instead, if you frame it as a sudden drop in the value of your investments, then you are very highly in control of your risk.  You can choose your investments.  Your choice to manage the risk becomes a tractable risk reward trade-off.  You can buy hedges to mitigate the amount of your losses.

The same goes for Hurricanes or other acts of nature.  If you say that your risk is hurricanes, then you cannot control hurricanes and you are done.  The risk management committee can go home early.  But if you say that your risk is “damage caused by hurricanes”, suddenly you are in charge.  You have options and you have responsibilities.  You have the option to move some of your activities out of the path of hurricanes.  You have the option to make sure that the construction of your building can withstand some or all hurricanes and the concurrent storm surge.  You have the option of buying insurance to make sure that your damages are reimbursed.

So look at your list of risks.  Make sure that even if it says Hurricane, that you are treating it as a manageable risk.  As if it said “damage caused by hurricanes” that you can manage and you are not just throwing up your hands because you cannot stop a hurricane.

 

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Explore posts in the same categories: Enterprise Risk Management, Risk Identification

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