Is the risk quantification construct a panacea?
Sometimes it can be, but oftentimes, the quantitative information is combined with other qualitative aspects such as business relationships, market constraints, judgment, etc., to support the decision at hand.
How can you drive value out of your enterprise risk management program?
Our belief is that strategic planning and action need to be supported by an ERM program, and one way to get there is through risk quantification. Risk quantification generates additional information to understand the true nature of a risk or opportunity, and it can allow for various management strategies to be compared on a common and consistent platform in a common language — likelihood and impact.
By using a risk quantification framework, decision-makers can be empowered by understanding individual risks in a deeper manner, building a portfolio view of key risks and drivers, and understanding opportunities to improve their organization.
Perhaps equally important is the fact that a structured and well-understood process can be established that is flexible to change as the risk profile and opportunities at hand change.
As a parting thought, we’d like you to go through a little exercise. Think of five important risk or opportunity categories in your organization that are managed with the help of risk quantification, and write these down. Are these models a part of everyday life, and are they valued by the business and risk owners?
Now, think of five important categories that do not leverage risk quantification frameworks to support management decisions but that could, and write these down, as well. Ask yourself why this is the case.
In comparing the two lists, we hope you begin to envision how risk quantification can bring value to your organization.
Keith DeCoster is managing director of Aon Risk Services. Reach him at (317) 237-2400 or [email protected].