Mastering Risk Management

PREDICTIVE RISK MANAGEMENT INDICATORS

As noted in the introduction to this chapter, risk indicators are sometimes able to show when risks are more likely to occur; they can give early warning signals before risks happen. The challenge for risk management is to identify which indicators are most likely to give the early warning signals, in other words the ones which act as effective leading indicators. Clearly, indicators that the risk is more likely to happen, likelihood indicators, are a good place to start as these provide warnings before the risk event has occurred. Equally, indicators about the impact of a risk event are lagging indicators and will tell you about the effect of the risk when it has happened, and the likely size of the impact. ...