Mastering Risk Management

CAUSE AND EFFECT

There is one further thought about the nature of all risks. For most types of risk, an event happens and the result is usually a financial loss – or, rarely and tragically, human loss. And that is what people focus on in trying to decide how better to manage risk in future – the effect.

But that is not what risk management is about. It is about understanding fully the chain of causality, the simple sequence of:

CAUSE → EVENT → EFFECT (OR CONSEQUENCE)

While risk management is about managing events, it does so through preventative controls and indicators to manage their causes and through detective controls and actions to mitigate their effects. Too often firms, including risk managers, confuse causes and effects with events, ...