Alex Sidorenko's Posts (45)

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Archer got together with Alex Sidorenko, FERMA Risk Manager of the Year 2021, RIMS International Honoree 2021, to create this practical bootcamp designed to help companies implement quantitative risk management that pays for itself.

Imagine saving the company so much money that investing in risk management competencies and resources becomes a no brainer for the executives. Well, that’s exactly what Alex did at a global $10B chemical company and he has been kind enough to share his top tips and lessons learned with you each week.

Sign up to see if this is the direction you want to take risk management within your organization and save some money along the way. No obligations, you can unsubscribe at any stage.

We promise this will be practical, simple, step by step and a maybe even a little provocative. The bootcamp runs 5 weeks, each week you will receive a new idea, tutorial, checklist or template and a big energy boost to try this at your organization.

Upgrade your risk management game with Archer and Alex Sidorenko.

https://go.archerirm.co/Archer-Insight-BootCamp

I wanted to start this journey with one important take away from my career in risk management – despite the long-term focus on ERM, I found the greatest value and savings usually come from dealing with a single risk or decision really well. Dealing with one risk or decision at the time have the biggest ROI in my experience.

We call it “to think big, first execute small”.

 

It doesn’t mean you don’t have to move towards ERM, just means that while you do, you can save your company a lot of money and significantly improve quality of decision making and the risk team reputation along the way.

I have identified a number of areas where risk management integration into decision making can deliver immediate and very tangible savings for the company.

Let’s start with the biggest money maker – insurance. Next week: quantifying environmental risks to optimize controls budget and reduce risk exposure. 

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Just as electrification replaces technologies that use fossil fuels with those that use electricity, Chancification replaces computations based on deterministic numbers with those based on probability distributions.

Just as non-experts can illuminate light bulbs with electricity generated by power engineers, Chancification will allow everyday managers (even those suffering from Post-Traumatic Statistics Disorder, or PTSD) to illuminate uncertainty and fix the Flaw of Averages with stochastic libraries created by statisticians and data scientists.

I will demonstrate free tools that will help you jump start this process within your own organization.

https://2022.riskawarenessweek.com/talks/chance-informed-healthcare-resource-management-in-the-face-of-pandemic-uncertainty/

Dr. Sam L. Savage is the author of The Flaw of Averages and Executive Director of ProbabilityManagement.org, a 501(c)(3) nonprofit devoted to making uncertainty actionable. The organization has received funding from Chevron, Lockheed Martin, General Electric, PG&E, Wells Fargo, Kaiser Permanente and others.

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Annual virtual RISK AWARENESS WEEK is back from October 17, with over 40 workshops sharing the latest in risk management thinking. The five-day-long schedule includes sessions from 32 of the best risk management 2 and decision making practitioners in the world, sharing everything from practical case studies to model demonstrations.

With just few weeks to go, we spoke to past attendees who shared why they think you should attend this year’s #RAW2022.

Learn from the experts

“Majority of presenters are known experts in their fields”

“Mostly the absolutely outstanding presenters you bring together every year.”

The #RAW2022 agenda is jam-packed with industry experts, whether that’s senior risk professionals sharing case studies, authors sharing the latest thinking, or peers giving access to the models and statistical analysis techniques.

Just some of this year’s speakers are:

  • David R. Koenig, President and CEO of The DCRO Institute and award-winning author of The Board Member’s Guide to Risk.
  • Sam L. Savage, the author of The Flaw of Averages and Executive Director of ProbabilityManagement.org,
  • Benoit Ladouceur, Director, Bureau of Institutional Research, UQAM (Université du Québec à Montréal)
  • Alex Sidorenko, Head of operational risk and insurance, EuroChem
  • Sajid Iqbal, Deputy CRO, Habib Bank AG Zurich
  • Darlene Halwas, board member for the Commission for Complaints for Telecom-television Services, Carbon Management Canada Inc., and Alberta WaterPortal Society
  • Cristina Martinez, Group Chief Risk Officer, SACYR
  • Tarek Aoun, Head of Risk Management & Control, FFA Private Bank
  • Angela Hoon, SVP Audit, Risk & Asset Protection, Advance Auto Parts
  • Michiel Haasbroek, Chief Risk Officer, Banque Internationale a Luxembourg (Suisse)
  • Michael Koller Prof. Dr. , CRO / Extraordinary professor, Amlin AG / Federal Institute of Technology Zurich (ETH)

See all this year’s speakers here: https://2022.riskawarenessweek.com/speakers/

Interactive sessions

“The interactive aspect of the conference means presenters talk to you not at you. The presenters are approachable and will interact long after the presentations are over.”

One thing that makes Risk Awareness Week stand apart from other conferences is its interactivity. Watching the sessions live allows you to post questions and create a dialogue with speakers. There are no sales pitches, and every talk is designed to be thought provoking and useful. Speakers are happy to interact and answer questions even once sessions have finished, giving you total access to experts and peers in the risk management field.

Practical knowledge

“Most of what is presented can be applied to the participants career field almost immediately.”

“While all the presenters have firms, practices, or companies they work for, there are no plugs that their stuff is better than anyone else’s and no sales pitch. It’s actually information I can use, not information I can use if I buy their software.”

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“It’s available for everyone, at every level, with truly actionable advice/tips”

The sessions are designed to be accessible, practical and usable. This means the knowledge you gain can be applied in your own role. Many speakers share their own excel templates or models, giving you tools that can be applied in any area of risk management. There are also plenty of case studies, where senior risk managers share approaches and lessons learnt from real life problems.

Amazing content

“The different fields represented means you will learn something new”

“Simple. Year 2 showed how to apply Monte Carlo to heist. Year 3 how to kill James Bond. Year 4 will have zombies. “

Session topics are interesting, current, and practical. Attendees say they always learn something new, and each day is geared to helping you overcome the greatest challenges facing risk managers.

  • Day one features case studies showing how to sell better risk-based decision making to boards and executives. Watch these workshops if you are just starting your journey towards RM2
  • Day two will share real life case studies on risk identification and overcoming biases, weak risk culture and how to overcome a lack of appreciation for risks.
  • Day three is focused on mathematically sound and proven risk management techniques that improve decision making while keeping model error in check.
  • Day four is stuffed with examples of how risk analysis can help you make better mitigation choices and create risk management strategies that reduce overall risk exposure.
  • Day five is dedicated to integrating outcomes of risk analysis into performance reporting and monitoring.

View the whole program, and book to attend sessions and workshops here.

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Organizational resilience is surprisingly strange. It is not nearly as clear-cut and straight-forward as we typically believe. It is full of tensions and paradoxes, most of which have been overlooked, and few of which anyone has begun to carefully address.

In particular, leaders at all levels may have to actively surrender a great deal of control during times of great change, exactly the times where they will be tempted to ‘grab the reins’ most forcefully.

In this talk, Dr. David Lindstedt discusses his research on Building Resilient Organizations, focusing in particular on ways to begin to prepare for constant adaptation in a VUCA world while meeting the consistent demands for control and efficiency.

https://2022.riskawarenessweek.com/talks/preparing-to-let-navigating-the-strangeness-of-organizational-resilience/

Dr. David Lindstedt splits his time between business continuity and resilience consulting, project portfolio management, and research. He founded his own company, established an industry standard, leads an international think tank, and serves on the editorial board for the Journal of Business Continuity and Emergency Planning. He consults with Fortune 100 and Fortune 500 companies and nonprofit organizations. He has published dozens of articles, both general and scholarly. He regularly presents at continuity and risk management conferences, is a frequent guest on podcasts, and occasionally lectures in university courses on preparedness and project management.

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Some California utilities have been in the headlines for all the wrong reasons – including the 2010 San Bruno gas pipeline explosion that killed 8 people, the 2015/6 leak from Aliso Canyon gas storage, the 2018 Camp Fire that destroyed the town of Paradise, plus the Dominion Pipeline ransomware cyberattack that cut gasoline supply to the US Northeast.

The California Public Utilities Commission requires utilities to quantify these risks using risk-spend efficiency (RSE) to prioritize mitigations based on how much risk they reduce per dollar invested. It uses a multi-attribute value function to combine outcomes, including fatalities, reliability, and cost. I’ll review how California utilities are using this approach.

Max will discuss how these methods could help other organizations manage and mitigate a wide variety of risks.

https://2022.riskawarenessweek.com/talks/how-utilities-get-most-bang-for-the-buck-for-risk-mitigation/

Max Henrion, PhD is the founder and CEO of Lumina Decision Systems. He was founding President of the Association of Uncertainty and Artificial Intelligence. He coauthored “Uncertainty” (Cambridge Univ Press), three other books, and over 70 refereed articles. He was lead designer of Analytica, about which PC Week said “All the problems of the common spreadsheet are fixed in Analytica”. He was formerly Professor at Carnegie Mellon. He has a BA from Cambridge University and PhD from Carnegie Mellon. He received the 2018 Frank Ramsey Medal from the Decision Analysis Society.

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3 steps to make your business more resilient

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In risk management there is a concept that will be useful for any business out there, it is called – EXPECTED LOSSES. This means that certain risks are inevitable and will occur no matter what. Stealing in retail, foreign exchange fluctuations or customer bad debts are all examples of losses that happen all the time. Some companies have more losses, others have less, but no company has zero risk.

This is a very important concept for any size business because it reminds us that certain losses are inevitable and must be budgeted upfront. No point pretending interest rates are stable or that incidents don’t occur just to keep budgets low.

First useful technique require business to review historical losses to see what losses or delays are almost inevitable and include them into current plans, budgets and forecasts. Keep in mind that history is never a good enough representation of the future, so adjustments will need to be made. For example Archer Insight makes it easy to convert risks into bow ties and bow ties into quantitative risk profile. Expected losses are automatically calculated and can be aggregated.

Check that business can survive plausible worse case scenarios

Second useful concept is called UNEXPECTED LOSSES, PLAUSIBLE WORSE CASE SCENARIO OR VALUE AT RISK(VaR). Every so often, usually once or twice a year or whenever makes sense for your business, companies should check whether they have sufficient liquidity in case significant risks happen.

Scenario analysis is a useful technique here. It allows management to test various what if scenarios. What if sales drop more than expected or costs go up more that ever before or certain markets become completely unavailable. Running scenarios is a great way to test how resilient is your business plan. Checking assumptions used in business planning is a great way to determine what scenarios should be tested.

 

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Have plan B,C and D just in case

Some risks are known and expected, that’s expected losses. Some risks are known but rare and unexpected, that’s unexpected losses. And there some risks that are completely unknown and a total surprise for management. It is difficult to prepare for them specifically, so instead management should develop a set of responses, plans B, C and D in case something completely unexpected happens or unexpected losses are much worse than anticipated.

Read more…

In my 16 year career in risk management I hired or helped to hire a lot of risk professionals both in Europe and Middle East. In this article I describe the competencies that I usually look for in a risk professional. The list of competencies I originally wrote about still rings true to me. So I dedicated my last 4 years to creating a platform where risk management can upskill and learn from some of the best risk and decision professionals on the planet.

I strongly believe that learning how to build an influence diagram or a decision tree and then converting it into a stochastic model, running simulations and back testing model assumptions will prepare you for any emerging risk on the planet. Risks change, the math under the bonnet is almost always the same. Learning the basic principles of probability theory, decision science, behavioral economics and corporate finance, in my mind, is still the most important skillset for a risk manager to have.

If you are looking to upskill your risk team, want to understand what is risk management all about, thinking of switching to risk management or just want a better job, then look no further. Learn from this collection of amazing resources.

Watch RAW2019 replays, still as relevant as ever

Learn how to use influence diagrams to build a risk model, how to use SIPs to make your risk models universally used throughout the organisation, why heatmaps don’t work, overcome cognitive biases when talking about risks, implement practical risk culture ideas and many more. All RAW2019 replays are now free.

 
 
  • RAW2019: Chris Hunt - Human Risk

    RAW2019: Chris Hunt - Human Risk

  • RAW2019: Graeme Keith - Mapping the world: How causal maps help

    RAW2019: Graeme Keith - Mapping the world: How causal maps help

  • RAW2019: David Vose - Why only a quantitative ERM approach will help solve the problems

    RAW2019: David Vose - Why only a quantitative ERM approach will help solve the problems

  • RAW2019: Grant Purdy - The millstone called ‘risk management’

    RAW2019: Grant Purdy - The millstone called ‘risk management’

  • Latest trends in Risk Management 2 by Alex Sidorenko at #raw2019

    Latest trends in Risk Management 2 by Alex Sidorenko at #raw2019

  • RAW2019: Alex Dali  - Changes in the 2018 version of the ISO 31000 standard

    RAW2019: Alex Dali - Changes in the 2018 version of the ISO 31000 standard

  • RAW2019: Ben Pickup - Corporate misconduct has its origins in poor risk management practices

    RAW2019: Ben Pickup - Corporate misconduct has its origins in poor risk management practices

  • RAW2019: Norman Marks - Risk Management in Plain English

    RAW2019: Norman Marks - Risk Management in Plain English

  • RAW2019: Patrick McConnell - Strategic Risk Management increasing the chances of succeeding

    RAW2019: Patrick McConnell - Strategic Risk Management increasing the chances of succeeding

  • RAW2019: Mark Powell - The Philosophy and Setting the Risk Framework

    RAW2019: Mark Powell - The Philosophy and Setting the Risk Framework

  • RAW2019: Derval Research - Neurosciences, Leadership Styles, and Risk Management

    RAW2019: Derval Research - Neurosciences, Leadership Styles, and Risk Management

  • RAW2019: Frank Ashe - Do you know what you're doing

    RAW2019: Frank Ashe - Do you know what you're doing

Watch RAW2020 replays and share with your team

Learn some of most advanced project risk management techniques, use game theory to improve decision making, integrate risk analysis into planning and budgeting. Learn how to calibrate experts if you must use their opinions in risk analysis and why a group of experts is better than one. All RAW2020 replays are free to our YouTube members.

 
 
  • Welcome to #RAW2020

    Welcome to #RAW2020

  • RAW2020: Alex Sidorenko - Future trends in Risk Management 2.0

    RAW2020: Alex Sidorenko - Future trends in Risk Management 2.0

  • RAW2020: Annette Hofmann - The Cat Insurance Puzzle: Why People insure their Cellphone but not Home

    RAW2020: Annette Hofmann - The Cat Insurance Puzzle: Why People insure their Cellphone but not Home

  • Annette Hofmann - The Cat Insurance: Why People insure their Cellphone but not their Home #RAW2020

    Annette Hofmann - The Cat Insurance: Why People insure their Cellphone but not their Home #RAW2020

  • Alex Sidorenko - Future trends in Risk Management 2.0 #RAW2020

    Alex Sidorenko - Future trends in Risk Management 2.0 #RAW2020

  • Ariadna Berger - Agricultural Risk Analysis: art and science #RAW2020

    Ariadna Berger - Agricultural Risk Analysis: art and science #RAW2020

  • Ben Cattaneo - Death, Taxes and Uncertainty #RAW2020

    Ben Cattaneo - Death, Taxes and Uncertainty #RAW2020

  • Managing risks while getting shot at – AKA you have the time to conduct a risk assessment

    Managing risks while getting shot at – AKA you have the time to conduct a risk assessment

  • Benoit Ladouceur - Introduction to using QRA for nefarious decision making.

    Benoit Ladouceur - Introduction to using QRA for nefarious decision making.

  • Brian Putt - Applying Decision Quality Framing practices to a case study #raw2020

    Brian Putt - Applying Decision Quality Framing practices to a case study #raw2020

  • Brian Putt - Create an Excel model and evaluate using Decision Analysis and Monte Carlo #raw2020

    Brian Putt - Create an Excel model and evaluate using Decision Analysis and Monte Carlo #raw2020

  • Bridget Cash - Stochastic Contagion Models for Collaborative Pandemic Risk Management #raw2020

    Bridget Cash - Stochastic Contagion Models for Collaborative Pandemic Risk Management #raw2020

Watch RAW2021 replays and turn it into an online learning for corporate employees

Learn more about project risk management techniques, apply risk analysis to save lots on insurance and lots more. RAW2021 workshops are free to anyone registered and paid for RAW2022.

 
 
  • Measuring Readiness and Building Capability in Business Continuity - David Lindstedt

    Measuring Readiness and Building Capability in Business Continuity - David Lindstedt

  • Future trends in Risk Management 2.0 - Alex Sidorenko at RAW2021

    Future trends in Risk Management 2.0 - Alex Sidorenko at RAW2021

  • Practical steps to enrich risk analysis with scenario planning - Henk Krijnen

    Practical steps to enrich risk analysis with scenario planning - Henk Krijnen

  • The board's role in risk governance - Norman Marks

    The board's role in risk governance - Norman Marks

  • Risk as a Scarce Resource - Boards and the Attraction of Risk Capital - David Koenig

    Risk as a Scarce Resource - Boards and the Attraction of Risk Capital - David Koenig

  • Measuring Outcomes and Demonstrating Value in Resilience - Mark Armour

    Measuring Outcomes and Demonstrating Value in Resilience - Mark Armour

  • Robert Brown highlights

    Robert Brown highlights

  • Mariia Kozlova highlights

    Mariia Kozlova highlights

  • Joe Scott highlights

    Joe Scott highlights

  • David Vose highlights

    David Vose highlights

  • Brian Putt highlights

    Brian Putt highlights

  • Hans Laessoe highlights

    Hans Laessoe highlights

Watch RAW for Charity to learn and support a great cause

Earlier in 2022 a small group of speakers got together to share some of the latest case studies and techniques in risk management and support the victims of the war in Ukraine.

 
  • How to measure risk manager's performance - Alex Sidorenko, David Vose, Graeme Keith #RAW2022

    How to measure risk manager's performance - Alex Sidorenko, David Vose, Graeme Keith #RAW2022

  • Private video

    Private video

  • How to measure risk manager's performance - Alex Sidorenko, David Vose, Graeme Keith #RAW2022

    How to measure risk manager's performance - Alex Sidorenko, David Vose, Graeme Keith #RAW2022

  • RISK AWARENESS for charity, support victims of the war - Alex Sidorenko #RAW2022

    RISK AWARENESS for charity, support victims of the war - Alex Sidorenko #RAW2022

  • Data literacy is so boring - Trent Russell #RAW2022

    Data literacy is so boring - Trent Russell #RAW2022

  • The specter of resilience - David Lindstedt #RAW2022

    The specter of resilience - David Lindstedt #RAW2022

  • Quantifying reputational risk - Benoit Ladouceur #RAW2022

    Quantifying reputational risk - Benoit Ladouceur #RAW2022

  • Effective risk reporting - Hans Læssøe #RAW2022

    Effective risk reporting - Hans Læssøe #RAW2022

  • ChanceCalc: The lightbulb for your probability power grid - Sam Savage #RAW2022

    ChanceCalc: The lightbulb for your probability power grid - Sam Savage #RAW2022

  • Chancification: How to fix the flaw of averages - Sam Savage #RAW2022

    Chancification: How to fix the flaw of averages - Sam Savage #RAW2022

  • The latest developments in combining expert judgements - Doug Hubbard #RAW2022

    The latest developments in combining expert judgements - Doug Hubbard #RAW2022

  • Bringing quantification into the risk game - David Vose #RAW2022

    Bringing quantification into the risk game - David Vose #RAW2022

 

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Watch RAW2022

Use the experience gained at RAW2022 to advance your careerupskill your risk management team or find a better jobOur aim is to bring together best quantitative risk management practices in a easy to understand and practical fashion for a fraction of the price.

You can watch the workshops live or in replay on your phone, computer or tablet. If you can’t watch the session live, don’t worry, replays will be available forever. More than 10000 participants watched RAW workshops over the last 3 years, don’t miss this opportunity to upgrade your risk game.

The workshops will be of value to decision makers and risk professionals alike, so share with your management teams and let them appreciate what risk management is all about.

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The panel (Darlene Halwas, Cristina Martinez, Angela Hoon, moderated by David Koenig) will share personal stories and lessons learned when implementing risk management within organizations, including Board and management resistance, low process maturity, restrictive regulatory requirements and lack of resources dedicated to risk management implementation.

Participants will feel inspired by the stories and take away the valuable lessons for overcoming these and other challenges.

https://2022.riskawarenessweek.com/talks/key-challenges-when-integrating-risk-management-into-planning-budgeting-investment-decision-making-and-performance-and-how-our-company-overcame-them/

DAVID R. KOENIG

David R. Koenig is the award-winning author of Governance Reimagined: Organizational Design, Risk, and Value Creation and The Board Member’s Guide to Risk.

DARLENE HALWAS

Darlene currently serves on the boards of Commission for Complaints for Telecom-television Services, Carbon Management Canada Inc., and Alberta WaterPortal Society. She has almost 30 years of work experience, with 15 years focused on leading risk management functions for companies.

ANGELA HOON

Angela Hoon is an experienced transformational leader in Strategic Risk Management, with the ability to connect-the-dots at an enterprise level, by using a risk lens to help the business in analyzing critical complex cross functional challenges.

CRISTINA MARTINEZ

Cristina Martinez is a Qualified Risk Director® with over 15 years of risk and insurance management experience in non-financial sector across the world. In 2021 Cristina was awarded Risk Resilience Initiative of the Year by FERMA.

Read more…

The team at Archer Integrated Risk Management and I have created a fun online game to test how ready you are to present risk data to the Board and support the decision being made.

Imagine yourself in a position:

You are just leaving for the day, the phone suddenly rings, it’s the CEO.  Management is bringing an updated business plan for Board approval. Significant risks are associated with the new business plan and the CEO needs your help. You have just 2 days to prepare a risk management presentation for the board.  Do you have what it takes?

TAKE THE CHALLENGE

Enjoy, there is a nice reward at the end of it.

Read more…

What should an awesome risk report look like?

Companies and regulators love reports, disclosures and transparency. And nobody loves risk reporting more than me. Trouble is risk reports are RM1. If we wanted to really make a difference to decision makers we would switch from risk reporting to risk-adjusted performance reporting instead. Risk managers always have a choice: generate own risk reports or use the outputs of risk analysis to improve existing performance and management reports instead. To me the choice is clear. Integrating risk information into existing management reporting is the future. So, what should risk-adjusted performance report look like?

5 items you would expect to see in an awesome performance report:

1. Probability of achieving a target or an objective / likelihood of success

A useful metric that risk managers should communicate to decision makers is the probability of meeting / achieving an objective or target. Think of it as achievability given the risks. If your performance report has targets or objectives, then risk managers can measure and report how achievable they are and whether they are more achievable today than last month. Norman Marks calls this likelihood of success and Tim Leech calls objective centric. I provide a step by the step guide how to do it here.  This can be represented as a single number (70% probability of achieving business plan objective) or as bands (forecasted performs falls within acceptable range). Separate likelihood of success needs to be reported for each significant objective. Archer Insight, for example, does a good job presenting risk information as probability distributions around the objective.

2. Risk-adjusted performance metrics

Most of the time it makes no sense reporting on the risks, instead information about risks can be represented as effect on some existing performance metric. Taleb calls it X and f(X). They also call it f(x) in operations research. Sure we can quantify any risk, build a loss exceedance curve and even make important conclusions related to the mitigation of that specific risk. This is called X. But it is so much more useful to measure the effect of risk on a decision or an objective instead. This is called f(X) or function of risk.

This can look like representing risks associated with an investment project as volatility of NPV or risks associated with construction project as volatility of budget and schedule. Risks associated with production can be represented as volatility of volume of product produced. Or assigning future cash flows to their associated risks expectations to inform decision makers that some promises are more certain than others. Other metrics like RAROC are also good examples.

Obviously it would be weird to see risk adjusted metrics in a risk report, instead good risk managers change how performance is reported in existing performance and management reports.

3. VaRs, EaRs, cVaRs

There are certain risks where it makes sense to report them as stand alone items. For these risks a loss exceedance curve is normally generated and useful metrics like expected losses, VaR (unexpected losses), probability above threshold, etc. are determined.

This is what a typical loss exceedance curve looks like:

Picture1.png?resize=730%2C228&ssl=1https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=300%2C94&ssl=1 300w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=150%2C47&ssl=1 150w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=768%2C240&ssl=1 768w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=1536%2C480&ssl=1 1536w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=2048%2C639&ssl=1 2048w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=900%2C281&ssl=1 900w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=260%2C81&ssl=1 260w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?resize=600%2C187&ssl=1 600w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?w=1460&ssl=1 1460w, https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?w=2190&ssl=1 2190w" alt="insurance" width="728" height="228" data-attachment-id="25541" data-permalink="https://riskacademy.blog/understanding-the-risk-profile-is-the-most-important-step-in-insurance-decisions-so-why-isnt-everyone-doing-it/picture1-5/" data-orig-file="https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?fit=3898%2C1217&ssl=1" data-orig-size="3898,1217" data-comments-opened="1" data-image-meta="{"aperture":"0","credit":"","camera":"","caption":"","created_timestamp":"0","copyright":"","focal_length":"0","iso":"0","shutter_speed":"0","title":"","orientation":"0"}" data-image-title="Picture1" data-image-description="" data-image-caption="" data-medium-file="https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?fit=300%2C94&ssl=1" data-large-file="https://i0.wp.com/riskacademy.blog/wp-content/uploads/2022/08/Picture1.png?fit=730%2C228&ssl=1" data-lazy-loaded="1" />

It makes sense to report risks as standalone if they need to be monitored on a regular basis and have a specific and mature market for mitigation, for example credit risk or market risks. Sometimes we reported operational risks as well, but usually to serve a specific and once-off narrow purpose like purchasing an insurance policy or adjusting maintenance budget or mitigating an environmental risk.

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If there is a culture within the organisation to track and monitor specific financial risks then it is common to pull that information into a separate risk report and present it on a regular basis to monitor whether risk exposure is within limits. Since VaR recalculation requires risk models companies usually automate that part of risk reporting. More on that in the next section.

4. Limit breaches and activated stop losses

Whenever risks are quantified as standalone, unexpected losses or VaRs can be used to set limits and use middle office to monitor against the target risk exposure. Risk management team plays an important internal control role by recalculating VaRs frequently, monitoring risk exposure and activating stop losses if risk exposure goes outside limits. This work usually requires close collaboration with finance, treasury and commercial teams.

5. Transparent methodology with a back test

Finally, an awesome risk-adjusted performance report would make the methodologies used in risk analysis transparent to the decision makers and provide clear results of the back tests used. Showing evidence of past back tests is important to give decision makers the confidence needed to make the decisions based on the information presented.

What would you add to the risk-adjusted performance report? Catch Graeme, David and I just before the FERMA event in Copenhagen to share ideas.

 

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Be aware, your Board may have survived the Zombie Apocalypse and still require the quarterly risk report. Will standard GRC reporting save the day? Or should we work toward better risk reporting?

And how can we track risks through analytics and indicators to separate the signal from the noise and avoid being eaten?

This hopefully funny presentation will start with simpler concepts and gradually move toward more mathematical analytics to help you step up your reporting game and maybe become the Oracle of your organization.

https://2022.riskawarenessweek.com/talks/how-to-kill-james-bond-using-bayesian-inference/

ABOUT THIS SPEAKER

It’s simple, in matters of risk management we need to go above what most consultants and organizations are proposing. Be it for financial performance, Health and Safety or project portfolio management, the future of risk management does not lie within heat maps and shady formulas, but rather in sound methods. Through Monte Carlo simulations or decision trees, Machine Learning or statistics, we need to make sure that risk management is integrated in the DNA and the process of an organization. It’s also a team sport.

What engages me is to leverage technology in order to better risk management as well as contributing to the increased maturity of an organization.

Interests : Risk management, data science, public safety, result driven management, project management, quantitative analysis and strategic planning.

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Join Norman and Alex for an invigorating debate about ERM, integrating risk analysis into decision making and the very essence of what is risk management or success management as Norman calls it.

https://2022.riskawarenessweek.com/talks/norman-and-alex-debate-erm-integration-into-performance-management/

Norman Marks, CPA, CRMA is a retired senior executive. He works with individuals and organizations around the world, advising them on risk management, internal audit, corporate governance, enterprise performance, and the value of information.

Norman was the chief audit executive of major global corporations for twenty years and is a globally-recognized thought leader in the professions of internal auditing and risk management. In addition, he served as chief risk officer, compliance officer, and ethics officer, and led what would now be called the IT governance function (information security, contingency planning, methodologies, standards, etc.) He managed the Sarbanes-Oxley Section 404 (SOX) programs and investigation units at several companies.

He is the author of more than a dozen books, including:

– Auditing at the Speed of Risk with an Agile, Continuous Audit Plan (2022)

– Risk Management for Success (2020)

– Making Business Sense of Technology Risk (2019)

– Risk Management in Plain English: A Guide for Executives (2018)

– World-Class Risk Management (2015)

Norman is a retired member of the review boards of several audit and risk management publications (including the magazines of ISACA and the IIA), a frequent speaker internationally, the author of multiple award-winning articles (receiving the IIA’s Thurston award in 2004 and 2014), and a prolific blogger.

Norman was profiled by the magazines of the AICPA and the IIA as an innovative and successful internal auditing leader. He has also been honored as a Fellow of the Open Compliance and Ethics Group for his GRC thought leadership, and as an Honorary Fellow of the Institute of Risk Management for his contributions to risk management. In 2018, he was inducted into the IIA’s American Hall of Distinguished Practitioners. He sits on a couple of not-for-profit boards.

Norman can be found at:

·        Norman Marks on Governance, Risk Management, and Internal Audit

·        http://twitter.com/normanmarks

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Risk management practitioners often struggle with their role and contribution to decision making. Clearly, an organization needs to fend off mishaps and mitigate events that might compromise its ability to achieve its objectives. The traditional domain of risk management, avoiding mishaps with negative impact, is only one side of the coin. Pursuing opportunities with a positive contribution is also critical for success. So how can risk management enhance its role and contribution to decision making?

In this workshop we will wander a little through the landscapes of both risk management and decision science. We will touch on three crossroads of typical risk management practice and the way organizations take decisions. We will present a structured way to prepare important decisions in which we make a distinction between the how (the process steps) and the what (all the things that need to be considered). Perhaps the most crucial process step is framing – identifying the issues in play. Here we arrive at the first intersection with risk management: risk identification. When we continue our journey, we find that incorporating risk in decision making is best facilitated by quantifying them to the extent sensible and possible. We will briefly discuss some techniques to do that at this second intersection between risk and decision analysis. Yet, we will also argue that despite our emphasis on (credible) quantification, we still see a useful role for the often-ridiculed risk matrix. Lastly, at the third crossroad we take a look at the concept of risk appetite from the risk management domain and how this relates to making trade-offs in the decision domain.

We recommend to risk managers to, within their organizations, explore these and other crossroads of risk management practice and decision making. Managing threats to objectives is one thing, taking risk through visionary decisions is another. Ultimately, a full merger of risk management and decision analysis approaches may be in order, but first steps can be made through better collaboration and integration at crucial junctions.

https://2022.riskawarenessweek.com/talks/exploring-the-junctions-of-risk-management-and-decision-making/

DIANA DEL BEL BELLUZ

For over 30 years I have helped leaders implement systematic and proactive risk management to enable their people to take the calculated risks necessary to stay competitive, innovate, and create value. I work with executives, boards of directors, and risk practitioners in the corporate, government, and not-for-profit sectors.

HENK KRIJNEN

Henk Krijnen has completed a career of 35 years with Shell which took him to Indonesia, Thailand, the United States and the Netherlands. During his last five years in Shell’s corporate strategy department he played a pivotal role in establishing new approaches for risk and scenario analysis within the company.

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In 2021, risk team implemented a quantitative risk-based approach to insurance renewals which resulted in reducing the cost of insurance by 60% and improving the quality of coverage across all insurance lines. This approach allowed us to save, or rather pay a fair price for insurance across the globe. Key to success was not to rely on market “best practices”, but on testing various hypotheses in the market and relying on data.

The first and probably the most important step is understanding the underlying risk profile. This is what in decision science would be called framing the problem. For example, once we started investigating every insurance renewal, we discovered that:

  • There was no evidence to continue insuring some risks at all, given the exposure being withing shareholder risk appetite
  • Limits were often completely disconnected from actual risk scenarios (usually underinsurance on property and cargo and over insurance on liability lines)
  • Low deductibles made no economic sense given the cost of transfer and the cost of retention of risk.
  • Low loss ratios on some of the lines which needed to be investigated.

We start by separating compulsory and voluntary insurances. Since compulsory insurances in various countries are usually heavily regulated including pricing, we try to switch to longer term policies and don’t waste time on renewals every year. On the voluntary insurance lines, we start with the discussion with the business, the internal customer, to find out: reasons for having an insurance, historical losses, perceived risk profile and other relevant information. Sometimes we find out that insurance is a requirement from customers, business partners, contractors, banks or a regulatory requirement imposed in some countries and then we switch our quant risk analysis hat on. We are very selective where it makes sense to quantify risks since it usually takes a lot of time, months of work in fact. Spoiler alert, it is totally worth it.

We spend months collecting internal data and consulting with relevant risk experts before contacting insurance markets. Once we have built a decision tree or a bow-tie diagram and a simple model for the risk we reach out to external sources – underwriters, brokers, insurers, reinsurers, rating and analytical agencies, to collect market claims data and any other relevant information. We will need external data later to compare our company risk profile against the industry and to add tail events to our model.

For example, for cargo insurance we investigated and risk assessed which cargoes were being transported (reviewed lots of MSDS), which routes, which ports, which ships, which risks are the most significant to the other market players, which risks are the most significant for us, what controls we have in place over these risks. Then we analyze internal and external statistics, model the distribution of expected losses for this type of risk. We could use Poisson distribution for frequency of events and Pareto or Lognormal for the consequences. Sometimes it would make sense to use a splice distribution, with GPD used to model the tail of the distribution. The limit is determined from a worst-case scenario, usually losing the biggest ship with the most expensive product transportable on that ship, given the volatility of prices. For other insurance types we often engage external risk engineers to estimate plausible worst-case scenarios. I will write a separate article on risk engineers, as it turned out what is considered industry best practices was absolutely useless to us in quantifying risk profile, so we ended up writing a whole new technical specification for the risk survey from scratch.

Sometimes, after the initial risk analysis, we would come back to business with the conclusion that insurance may not be required at all, as risk is within risk appetite and request additional information if the business insists on insurance. Recently, the customer (internal risk owner) said that he wants the same insurance limit as last year. Having collected the data, we saw that there was no evidence to suggest the same limit was necessary and a limit four times lower would cover the risk at the given confidence level.

However, we would not just exclude the higher limit, we always test multiple hypotheses in the market, this means we never make a decision without first receiving feedback from the insurance market and pricing different hypothesis. As my experience shows we actually end up increasing, no reducing, limits most of the time based on the risk profile calculated.

This is what a typical risk profile looks like:

 
 

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The risk profile allows us to answer important questions before we even approach insurance markets:

  • Reasonable limit for the policy
  • Fair price for the policy
  • Ability to test different deductible options to see which one provides better return
  • Important operational risk information, including expected losses (needed for budgeting) and unexpected losses, VaR (needed for liquidity management).

The best thing about building a risk profile, the math is quite simple and replicable. We used similar models for cargo, liability, PD/BI, health and other lines. And now we are working on automating a model using Archer platform. Sign up here to find out when it goes live https://go.archerirm.co/Insight-RiskAcademy

In the next articles I will write about broker selection, preparing submissions (we do all submissions ourselves, never using broker submissions), dealing with underwriters and many more. 

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RISK AWARENESS WEEK is the biggest global online platform to learn risk management and decision making. Amazing lineup of international speakers share practical case studies on integrating risk management into corporate decision making, planning, budgeting, project management and risk-adjusted performance management. Our aim is to bring together best quantitative risk management practices in a easy to understand and practical fashion for a fraction of the price. 

You can watch the workshops live or in replay on your phone, computer or tablet. More than 10000 participants watched RAW workshops over the last 3 years, don’t miss this opportunity to upgrade your risk game. The workshops will be of value to decision makers and risk professionals alike.

EARLY BIRD https://2022.riskawarenessweek.com/ (save $250)

Five days of risk management and decision making content, specifically designed to help raise risk awareness and learn important risk management skills:

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  • DAY 1 – why manage risks, why move from RM1 to RM2
  • DAY 2 – risk identification techniques that work and help overcome biases and cultural pitfalls
  • DAY 3 – risk measurement techniques that pass back-tests, outperform heatmaps
  • DAY 4 – risk mitigations that reduce the overall risk exposure, trade-offs, measuring quantitative effect
  • DAY 5 – risk reporting integrated into performance management, risk-adjusted performance

Don’t miss this huge event.

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The COVID-19 pandemic is taking a heavy toll on people’s health, lives, and societies. Lots of us have felt worried about the coronavirus pandemic, and everyone will feel differently about the changes to lockdown restrictions.

If you have lost a job as a result of COVID-19 we would like to offer you free full access to RISK AWARENESS WEEK 2021 to continue learning and improving your risk management and decision making skills for when the economy recovers and new opportunities arise.

RAW2021 offers more than 50 interactive workshops in risk-based decision making that you can take, adopt and implement in your business. All this you can watch on your computer or mobile phone. In a different time zone? No problem, you will be able to watch replays of all sessions you register to and your access is forever, so you can rewatch it any time you like.

To get free full access simply fill in the form via the link below and one of our staff will get back to you with a special access link:

https://riskacademy.blog/free-access-to-raw2021-to-anyone-who-lost-a-job-due-to-covid-19/

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First, I wanted to share an extract from the book I am reading at the moment

Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life

The chapter is called “I Know It Works in Practice, but Does It Work in Theory? On John Harrison, Semmelweis and the Electronic Cigarette” and I though it gives a great historical take on why most risk managers and all risk management associations reject decision science, probability theory and neuroscience.

Here is the quote from the chapter:

In a sensible world, the only thing that would matter would be solving a problem by whatever means work best, but problem-solving is a strangely status-conscious job: there are high-status approaches and low-status approaches. Even Steve Jobs encountered the disdain of the nerdier elements of the software industry – ‘What does Steve do exactly? He can’t even code,’ an employee once snootily observed.

But compared to an eighteenth-century counterpart, Jobs had it easy. In the mid-eighteenth century, a largely self-taught clockmaker called John Harrison heard that the UK Government had pledged £20,000 – several million pounds in today’s currency – as a prize for anyone who could establish longitude to within half a degree* after a journey from England to the West Indies, and was determined to find a solution. This was a life and death matter – a navigational disaster by British naval ships off the Isles of Scilly in 1707 had left several thousand sailors dead. To judge proposed solutions, the crown established a Board of Longitude, consisting of the Astronomer Royal, admirals and mathematics professors, the Speaker of the House of Commons and ten Members of Parliament.

You’ll notice that there were no clockmakers on the committee – the prize was clearly offered under the assumption that the solution would be an astronomical one, featuring celestial measurement and advanced calculation. In the end, Harrison produced an astonishing series of discoveries that led to the invention of the marine chronometer, and with it a revolution in navigation. Once ships could carry an accurate timepiece at sea, they were finally able to calculate how far they had travelled from east to west without recourse to less reliable methods. 

Alongside Harrison’s remarkable technological work, there is also an interesting psychological aspect to this story. Though they awarded him a great deal of money for his invention, the prize was always denied to him, even though he demonstrated that his solution worked more than once. A great part of his later life was spent petitioning the authorities and complaining that he had been cheated of his reward. Nevil Maskelyne, a supporter of the ‘lunar distances’ method of astronomical calculation, is often portrayed as the villain for denying Harrison the prize – and it cannot have helped Harrison’s case when Maskelyne was made Astronomer Royal and a member of the prize-giving committee. But the real story is one of professional and academic hierarchy: to an astronomer, the solution of an uneducated man whose life had been spent making clocks did not seem worthy of recognition.

I am not so sure that Maskelyne was a villain and instead see him as a ‘typical intellectual’. I say this because we see the same pattern in a series of significant innovations – science seems to fall short of its ideals whenever the theoretical elegance of the solution or the intellectual credentials of the solver are valued above the practicality of an idea. If a problem is solved using a discipline other than that practised by those who believe themselves the rightful guardians of the solution, you’ll face an uphill struggle no matter how much evidence you can amass.

Until 1948, the Wright brothers’ Flyer was displayed not in the Smithsonian, but in the
Science Museum in London. This might seem strange, but for years after the bicycle shop owners from Ohio had flown their manned heavier-than-air device on North Carolina’s Outer Banks, the US Government refused to acknowledge their achievement, maintaining that a government sponsored programme had actually been first.

In 1847, when Ignaz Semmelweis decisively proved that hand-washing by doctors would cut the incidence of puerperal fever, a condition that could be fatal during childbirth, he was spurned. All too often, what matters is not whether an idea is true or effective, but whether it fits with the preconceptions of a dominant cabal.

I had always innocently assumed that after Edward Jenner discovered a vaccination against smallpox he would have presented his findings before sitting back to enjoy the acclaim. The truth was nothing of the kind; he spent the rest of his life defending his idea against a large number of people who had profited from an earlier practice called variolation, and were reluctant to admit that anything else was better.

As you can see, the push back we get for RM2, a approach to risk management superior in every way, is only to be expected. Well, while associations like FERMA, IIA, RIMS, RMIA, PARIMA and every single national risk association continue to push their pseudoscience, astrology-like agenda, a small group of good risk managers will focus on applying proven and tested techniques from decision science, probability theory and neuroscience using it as competitive advantage for their organisations.

That’s why we created RISK AWARENESS WEEK 2020, a place with no heatmaps, no risk management frameworks, no risk appetite statements, no risk owners, risk mitigations and other nonsense.

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I wanted to start with some typical math problems in school:

  • Two cars started from the same point, at 5 am, travelling in opposite directions at 40 and 50 mph respectively. At what time will they be 450 miles apart?
  • At 9 am a car (A) began a journey from a point, travelling at 40 mph. At 10 am another car (B) started travelling from the same point at 60 mph in the same direction as car (A). At what time will car B pass car A?

Or how about a geometry problem:

  • Find the length of the unknown side, a, of the right triangle below.

Triangle_a_9_12

  • A rectangle has an area of 96cm2. The width is four less than the length. What is the perimeter?

What’s wrong with those problems?

Let’s take this problem as an example: At 9 am a car (A) began a journey from a point, travelling at 40 mph. At 10 am another car (B) started travelling from the same point at 60 mph in the same direction as car (A). At what time will car B pass car A?

What is the answer? Most kids and their teachers would tell you it’s 12pm. Sure… in an academic world. What’s the probability that car B would pass car A at exactly 12pm in real life? It’s close to zero of course. Traffic jams, punctured tires, accidents, weather, none of that exists in the academic world.

Our kids are taught that problems have precise single possible solutions. Every problem in school must have a single correct answer. Nothing could be further from the truth in reality.

What should we be teaching our kids?

We need to teach kids about uncertainty and optionality. Being alive means making decisions under uncertainty, something that kids in school are completely unprepared. The real life rarely, if ever, has a single correct answer, there are usually multiple good choices and multiple bad choices. A distribution one might say.

Every real life decision is a trade off between risk and reward. We need to teach kids to make choices under uncertainty to choose the options which have greater probability of positive outcome. We also need to teach kids to appreciate the role of the chance on the outcomes of their decisions. It should be ok to make a good decision and just be unlucky. Kids should also learn that lucky outcomes happen to even the worst decisions and that’s also ok, but it’s not a sustainable life strategy.

Uncertainty needs to be appreciated, not ignored. Appreciating uncertainty teaches kids to stop blaming others and learn to take advantage of the situation instead.

Many years ago I wrote a chapter for the Ministry of Finance sponsored high-school textbook on risk management. Now that I have kids of my own, I think I will start teaching probabilistic thinking and optionality much earlier.

That’s why I created RAW2020, an online place to learn about better decision making and quantitative risk analysis. Even for kids.

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https://2020.riskawarenessweek.com/talks/leading-in-a-vuca-world-what-you-need-to-succeed/

There is a new skillset that will be needed by risk professionals in order to succeed in the post-COVID environment: known as the VUCA World!

Organizations will be looking to risk professionals to deliver higher value that will go beyond the typical technical expertise of developing risk registers.

Discover the missing skill a d how to develop it that will take your career to the next level!

https://2020.riskawarenessweek.com/talks/leading-in-a-vuca-world-what-you-need-to-succeed/

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Risk Management Awareness Week from 12 to 16 October 2020 is a perfect place for internal auditors to learn. Risk Awareness Week RAW2020 brings some of the leading risk management researchers and practitioners to your computer or mobile phone. It is designed to raise awareness about risk management application in planning, forecasting, budgeting, construction, investments and performance management and will significantly enhance your decision making.

It is a 100% online conference that enables you to tune into just the workshops that interest you. More than 50 presentations will be broadcast over the 5 days conference. You can attend both live sessions or watch the recordings. This event will be of value to decision makers and risk professionals alike.

5 reasons to attend #RAW2020

  1. Learn what effective risk management should look like
  2. Learn some of common mistakes many risk managers make and how to identify them
  3. Learn about latest changes in ISO31000:2018 as the key criteria for auditing risk management effectiveness
  4. Learn how to understand, interpret the risk information and why risks are not measured by just multiplying likelihood and consequence scores
  5. Learn what questions to ask decision makers and risk managers to understand whether risk management is effective or not

Free tickets are available! Check out the full agenda: https://2020.riskawarenessweek.com/schedule/

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lead