By the time that “conventional” risk management is considered relevant by many business owners, risk managers, insurers and banks the damage is already done!
That is bad news for the business owner and everyone, directly or indirectly, working with the business. It isn’t great news either for local and national economies that are reliant upon successful enterprises for their survival.
The paradox is that, this scenario is not necessarily bad for those involved in underwriting or managing the risks associated with financial or insurance “risk transfer”…and not just because they still get paid and can blame failures upon events that ‘could not’ be predicted (even when that is not the full story)…because, as long as there remains a need [to transfer risk], there MAY be sufficient risk spread or separation, that, in the event of a loss event (that cascades or spreads, vertically and horizontally to/from the client), a major company SHOULD be able to absorb the impact. But this does not appear to be enough to ensure Compliance with further Regulation, whether Basel, GIAS or similar.
un(fore)seen is not the same as unforeseeable
I hope this infographic helps clarify the point.
…but we can certainly make them worse by attempting to do so! The complexity and inter-connectedness of business [fractal complex systems and networks] has transformed the nature of risk in the “Digital Age”.
Unmanaged complexity is a source of systemic “risk” and adds to ‘reducible’ uncertainty.
Before we are able to apply the tools of risk management – without adding to system complexity – we, first, need to extend the current “risk horizon” into uncertainty.
Reactive – Protection: Risk Management
Reflexively assessing risk [to enable compliance with legislation or regulations] is like prescribing treatment based upon observed symptoms and patient data of those with a similar profile, without identifying the root cause: or undertaking intricate surgery based upon an artists impression of the human anatomy!
Proactive – Prevention: Complexity Management
Tailoring treatment based upon a thorough examination of the patient – the equivalent of an MRI or PET scan [objective & quantitative] – observed at micro scale to treat at source: conduct micro surgery and monitor the health [resilience] of the patient, in real-time, whilst in theatre, ICU or for as long as is necessary.