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The Real Risks

September 28, 2015 by
Filed under: Risk Management

When you know something will happen, it is no longer a risk because you can prepare. Risk is defined as the 'effect of uncertainty of objectives' (ISO 31.000), so if you know something will happen, you don't need to be afraid, because you can prepare. I have to confess that there are circumstances where I would like to know what will happen, but I would still be afraid of the lion approaching. But, in that case, I could have known lions exist, and I should have prepared (in most cases that is).

So ignorance doesn't count. If you could have known, you should be prepared:

  • Extreme weather should not be a surprise, so we should use that knowledge to continuously improve. Living in a land that is more than 50% below sea-level, this is a given to me.
  • Running a website with payment options or sensitive customer data does attract hackers, so be prepared.
  • Driving a car without seat-belts is not a good idea, accidents do happen.

What about the risks you don't know. The dinosaurs didn't know about the meteor. And the truth should be told: what if they had, no meeting would have helped them out, and Bruce Willis wasn't around yet. You cannot prepare for them. But you can prepare for the scenarios: don't prepare for the specific event, but prepare for the impact.

The Basis of Risk Management

The fact that the likelihood of an event is low can then lead to a conclusion that the impact is so low that you're willing to take the risk. When you think of it, that is the basis of all actions: one would never drive a car if you would only look at impact, one would never start a company, one would never do - anything. But if you have an idea of the impact and the likelihood (frequency), you can and should decide on how (and if) to prepare. That is the basis of risk management.

Don't think about it too often or too long, as it would only depress you. Companies don't need to become like the doomsday preppers. That would be the same as preparing for your pension by buying a lottery ticket; statistics is maybe hard to understand, but that doesn't make it untrue. It's always about the balance.

Tags: Risk Management

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