Mastering Risk Management

GAINS AND OFFSETS

Event profits and gains are just as valuable for challenging likelihood and impact assessments as event losses. Of course, in many areas (such as the trading floor in a bank) gains and losses should be equal in number. A trader’s ‘fat finger’ is as likely to produce a gain as a loss. However, human nature being what it is, this is rarely seen in reports and is a reflection of a bias in reporting. Many profits are absorbed into the business line, whereas losses are usually identified explicitly.

Inevitably, and throughout most of this chapter, events and losses tend to be spoken of in the same breath. We are primarily concerned with negative impacts, whether they are financial or reputational. In risk management, however, events ...