You know the ‘Death and taxes’ phase? This is the full quote, from a letter Benjamin Franklin wrote in 1789 to Jean-Baptiste Le Roy – a French fellow tech guru and scientist of the time:
“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
How many infomercial articles have you read that start "In today's world, [blah blah blah] is more important than ever"? So trite. So, let me change things a bit:
“In today's world, we still live with enormous uncertainty and using numbers to effectively manage risk is just as important as it has always been.”
After a hiatus of twenty years (this July) of genuflection to SOX, the risk management world is beginning to remember numbers again. Beginning to remember that taking the right risks for the right reasons is an essential part of progress, of success, of creating value. It’s what risk management is meant to do and the secret sauce in rational risk-based decision-making is numbers.
Boxes of long-forgotten ideas are being taken down from the attics of veteran risk analysts, the dust of sorry neglect blown away, and carefully opened – with a mixture of curiosity, expectation and trepidation. Inside we find a mysterious collection of tools that have lost none of their lustrous sheen with age. In fact, in today’s world, with the greater access to data and computing power, they offer more potential than ever. If only we’d learned how they work. We should be kicking ourselves that we were so collectively neglectful.
Luckily there are lots of grey beards like me, raised in the pre-SOX era, who have kept the secrets alive. Luckier still, Archer has decided to add the full might of risk quantification to our GRC/IRM platform. It’s called Archer Insight and its awesome. I think Benjamin Franklin would have approved.
About that mixture of curiosity, expectation and trepidation …
Curiosity: what nuggets lie hidden in your data
It takes time, care, effort and money to collect data. Your organization has lots of it. If you’ve been using Archer for any length of time you will lots and lots of risk-related data, all beautifully organized and safe. Don’t you wonder what those data might be able to tell you?
One of the most common areas in which an organization can dramatically improve is to make use of the data it already collects. Risk management is no different. The discipline that turns data into knowledge is quantitative. Knowing how often your controls have failed helps you estimate their probability of success. Looking at how many of your historic risks actually occurred helps you see how much you over- or underestimate their likelihood. Looking at best and worst case scenarios helps you estimate the range and likely impacts. The list goes on and on.
Expectation: will it really help our business?
Yes, it will.
It will help you manage risks far more cost-effectively simply because you can compare the size of a risk against the costs of different treatment options and pick the option that gives you the greatest bang for your buck.
But it also means you can aggregate. Numbers can be added, risk scores cannot. Aggregation allows decision-makers to see the big picture, and that is an essential part of making the right big decisions.
Trepidation: You never understood statistics and probability theory
Don’t’ worry about that.
For many people, when they hear the phrase “risk quantification” they think of their less-than-rewarding experience with statistics classes at university. They understand that probability theory can only be wielded safely by socially-awkward, sartorially-challenged, wild-haired geniuses working feverishly on equations nobody else can understand. To be fair, they do exist – but their natural habitats are academia and perhaps SpaceX, and some of them look like you and me too. We focus a bit too much on that Einstein photo.
In the business world, the challenge is figuring out the best strategies for handling risk, not the math. The people who know the business and have a pragmatic, problem-solving head on their shoulders are best-placed to figure out these strategies. Perhaps that’s what you do already.
Framed properly, the method used to evaluate risk can make it really simple to provide the right numbers. Archer Insight is set up this way and it builds the risk analysis models for you as you describe the problem. You don’t ever need to pick a probability distribution or write an equation.
But it’s still a great idea to know the basics of probability. You’ll be more confident about explaining what’s been learned, checking the results and collecting the right data. It will take a couple of days of training, and Archer can provide that training. You might even find it fun.
Archer Insight Delivers Enterprise-Wide Risk Quantification
Archer® Insight is a suite of enterprise-wide risk quantification capabilities designed to deliver risk and business leaders a complete view of enterprise risks to improve resilience and ensure achievement of its strategic goals. For example, Archer Insight allows you to use built-in techniques like Monte Carlo simulation so you do not need to do all of the modeling yourself. Archer Insight can help you aggregate risk into meaningful quantitative measurements - and when you can add things, you can compare them. It allows you to compare risks and investments needed to mitigate, reduce, transfer or avoid risk.
Archer Insight is entirely quantitative, enabling you to combine all the threats to your organization and truly understand the risks that matter. It makes quantitative risk management quick and easy to use by providing a full set of tools and features for understanding and managing all types of risk in one platform: operational, project, cyber-security, health and safety, investment and cashflow risk.