Complex Risk Contexts-Pt2

/ July 8th, 2010/ Posted in How to do Risk Assessment / No Comments »

Here is a diagram — my Complex Risk Contexts Schema. In Complex Risk Contexts – Part 1,  I introduced the idea of muddled risk contexts that can make it difficult even to begin to conduct effective risk assessment. The first one was planning problems.

I think many risk managers would be able to write their own lists. Then how interesting it would be to compare our risk context statements and find out just how common our difficult business situations happen to be! I have posted here a summary of complex risk contexts. Let’s look at two more.

Multiple Assessments – Delicate Risk Context

Field risk assessments must often be repeated many times. Loss control inspections come to mind. But it could occur in social services, engineering or marketing. The problem is: how to you get consistency in such reports when they are conducted by field personnel with varying viewpoints? If the work has any degree of sensitivity, and demands a delicate balance of criteria, then general guidelines or policy will not answer.

I worked with a forestry team overseeing such risk assessments for tree sites across the province that were both a public hazard and a conservation refuge. The fate of these trees, determined by contractors, was not being decided with sufficient due diligence. The answer turned out to be a sort of auditable assessment tool, with refinements to balance contradictory criteria.

How to Choose the Optimal Solution?

One of the features of a mature Enterprise Risk Management system is that significant business investments, programs and initiatives are the result of a risk-based decision-making process.

Often a risk-based decision is required to select one of many possible solutions, whether a project, software application, or other sizable investment. It is not very thorough to just compare checklists of features. Conversely, you cannot conduct a High Quality Risk Assessment (link to online course) on each and every option. Even if you could, how can you compare the risk profiles when the trade-offs keep shifting from one case to the next?

I developed a solution to select the best risk financing option for a major Canadian federal crown corporation. It involves, indeed, a comparison of features of the various solutions. But it adds value by incorporating a comprehensive risk identification process. The team reviewed opportunity cost and mitigated the risk of foregoing the other candidate solutions. (It worked. They eventually decided on going with a captive.)

Those interested in seeing a fuller discussion of complex risk contexts may be interested in a new Risk & Insurance Management Society online course, currently in development – Special Case Studies in Risk Management. There are five more complex contexts discussed, with solutions and examples. The other modules within this course include Risk Scenarios Planning and Creative Contracts.

In the meantime I have posted here a summary of the complex risk context models – maybe they will inspire you to add your own.

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