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Anatomy of risk

 

We do not run risk analysis for fun. We need risk analysis to inform our decisions: where to go, what to do, who to partner with, what to avoid, etc. Instead, I regularly come across with ‘risk analyses’ which are nothing else but boring box-ticking exercises burdened by an organization or a project, providing with little if any input for decision-making. Hoping to address this situation, allow me to share some considerations on what can potentially help.

In this blog I’d like to explore the ‘anatomy of risk’. There are various definitions of ‘anatomy’ but I’d like to use this one: a separating or dividing into parts for detailed examination. Thus, herewith, I’d like to separate and divide ‘risk’ into parts for detailed examination *. There are seven elements that define the anatomy of risk, and needs to be addressed as questions:

Objectives: what are the objectives you want to achieve? Risks do not exist in isolation as an objective reality. They are always attached to your objectives by either facilitating or hindering their realization.

Change (plausible or preferable): what future event that if it materializes or desirable event that if not materializes, could impact your objectives? Understanding the change the starting point for your risk analysis. You should be careful to clearly define the time horizon you tackle for your risk analysis – are you looking for risks within the next week, year, or century?

Causes: what is the cause of that change? Your analysis is incomplete if you do not address the causes of the change (as far as they could be identified). You cannot prevent the risks or maximize your benefits if you don’t know the causes.

Impact: what are the consequences to expect on your objectives if risk materializes? This analysis helps you to think about preparedness for risk mitigation (in case of potentially negative consequences) and risk exploitation (in case of potentially positive consequences).

In many traditional risks analyses the above-mentioned could be sufficient for a ‘complete’ picture. Not for me! Acknowledging that in our complex and highly interdepend world, ‘risks’ are inevitable extensions of human activity or ripple effect we create with our actions, it is absolutely crucial to understand who are those that contribute to risk and those that bear the risk impact. In today’s world these are usually different actors, driven by their needs and interests while making choices based on their moral and ethical principles. Risk analysis inevitably raises issue of risk justice and risk accountability. Therefore, three additional questions have to be addressed for a complete risk analysis:

Contributor: who contributes to the risk?

Bearer: who will bear the risk burden?

Ethics: what ethical principles drive the choices we make and therefore, prefer one set of risks to the others? This is important in order to explain the choices we make for risk management, but also, to understand the ethical drivers of those contributing to risk and those bearing its burden. Only then we can explain the emerging dynamic and interplay of what is more uncertain and what is less.

Addressing these questions would help to understand the anatomy of risk, without which a risk analysis is a fiction.

* - http://www.merriam-webster.com/dictionary/anatomy