Matschulat Risk Framework

Observe the Risk

1. Major risks tend to be underestimated because they are not often observed 2. small losses dont require insurance

Two key elements in Risk Management

1. Risk Recognition 2. Risk Resolution

The Chance of a particular loss can be determined using

Probability theory

Imagine the Risk

- Come up with possibilities/brainstorm - carefully consider underlying assertions and assumptions

Loss Prevention and Insurance

- Insurance is essentially the transfer of risk to another party. This is really Mitigation, not prevention. - Loss prevention is the primary risk resolution activity because it is more efficient to avoid the creation of pure risks or eliminate them rather than deal with them in any other possible way.

Mapping and Modeling the Risk

- Mapping and modeling is used to identify and gain understanding of how the risks works - Better understanding and knowledge of a risk improves our ability to manage the risk.

Describe the risk

- defines more precisely what the risk entails - enable conversation so people can learn - enable public discourse for effective choices Bias Tendencies 1. overconfidence 2. Confirmation

Loss Prevention

- to take actions required to avoid or eliminate the chance of loss. the most efficient thing to do would be to avoid the creation of any risk. if the risk cannot be avoided, the next action will be aimed at risk elimination.

The logic of loss impact three areas

1. Cause of loss 2. Extent of loss 3. Consequences in money and lives

Measure the Risk

1. Logic of chance and Logic of loss depend on the ability to quantify the risk 2. Quantification helps us to define the risk 3. Be careful with the numbers

Extent of loss is measured in three areas

1. Magnitude 2. Scope 3. Duration

Loss Prevention two objective

1. Prevent the loss in the first place 2. Minimize the casualties and loss of assets

Tools used to measure risk

1. Probability ( subjectivists are ******** ) 2. Delphi Method 3. Bayes

Pure risk is usefully informed end explored by two logic of inquiry or inference

1. The logic of Chance 2. The Logic of loss

Paul Slovic Nine Pair of Perception

1. Voluntary- Involuntary 2. Delayed -Immediate 3. Known to be exposed- not known to be exposed 4. Known to science- not known to science 5. Controllable - Not Controllable 6. Old- New 7. Chronic- Catastrophic 8. Common- Dread 9. Certainly not fatal - Certainly Fatal

Consequences of Loss

1. What tangible of intangible assets have lost, value and how much has been lost? 2. Money, death and injuries are the key measures

Losses should be described in dollar terms to facilitate

1. comparisons 2. conversion 3. risk management 4. policy development

Probability can be three types

1. objective 2. conditional 3. subjective

Matschulat Framework objective

1. study it to gain better understanding of risk 2. Extract another risk framework from the paper

Applying the RMS

1.Help us to understand and deal with risks 2. Risk Management is based on the assumption that we can deal with and mitigate risks.

Risk Recognition

Break down each component of the framework into more detail.

Cause of loss

Cause of loss is essentially the threat

Extent of loss

Extent of loss is the size or impact of the loss

Vulnerability Hazard

Is anything that increases the chance of loss from a threat.

The logic of Loss

Losses should be described in dollar terms or loss of life to facilitate comparisons, conversions, risk management and policy development

Measurement Is Vital

Measurement is the language of risk and vital to understanding risk.

The Logic of Chance

More things can happen than will happen Subjective probabilities (High medium low)

Risk Management

Purposeful intervention to eliminate or mitigate the chance of loss with the objective of preserving the pre-loss value of the asset.

Risk is Reactive

Risk itself reacts to our attempts to manage it Risk Changes because we manage it

Risk Management Sequence RMS

Seven steps aimed at preserving the strategic, operational, and financial continuity of an enterprise. 1. Imagine 2. Describe 3. observe 4. measure 5. Map and model 6. Prevention 7. Mitigation

rational people observe/ perceive risks differently

homeowners insurance interset rate swaps

Risk is defined in the oxford dictionary

is " hazard, danger, exposure to mischance or peril.

understanding observed risk

people routinely misunderstand risk skilled practitioners perceive less risk