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