Risk Perspective

It’s a fact that people see Risk differently. Some might be said to put their head in the sand, and this may be true, but some just simply see Risks differently.

I have observed on more than one occasion that men tend to focus on the likelihood of risk, whereas women focus on the consequences. Having recently attended a seminar with Steve Peters, the author of The Chimp Paradox, I learnt the physiological reasons for this sits in the Limbic System of the brain.

  • The male brain is hard-wired to deal with threats so it’s natural focus on what is in front of it and is it a threat. If a situation or individual is not deemed a threat – low likelihood, then the Risk will not register.
  • The female brain is geared to caring for the family group and therefore has to consider a broader range of potential issues (higher consequence) so that these might be avoided. Women tend to have a greater peripheral view than men.

Add to this the wealth of research to show that extroverted personalities have a different risk spectrum to introverts. (Susan Cain’s book Quiet is an interesting read). This can throw up some interesting challenges when agreeing how to address Risk and selecting the appropriate Risk Treatment – Retain the Risk, Risk Transfer or Risk Management.

A solution to this problem is to focus on the financial consequences and impact of the risk manifesting itself. It achieves a number of things;

  • It removes any emotional subjectivity about Likelihood and thus certain individuals switching off.
  • It requires the brain to engage in a rational analysis of the Risk, rather than an initial emotional response (that will never happen) and once a value has been established it gives a better Risk Perspective – the revised Sentencing Guidelines issued by the Sentencing Guidelines Council have allowed many Boards to understand the financial impact of not getting Safety right.
  • With a value established it makes it easier to consider the appropriate Risk Treatment. Many Businesses (and their Insurance Brokers) struggle with their Business Interruption Insurance requirements, but if you walk through a scenario and look at the costs of say reinstating production in x days and then look at the comparative costs of Additional Increased Cost of Working cover, it is a “no brainer”.
  • It enables the Business to get a better perspective of its “Retained Risks”, because they are always there; loss of Business Value, Reputational Brand Damage, Reduced Productivity/Increased Costs, Loss of Customers. These cannot be addressed by Risk Transfer and have to be Managed. 
  • Risk is made up of 2 components and if we cannot grasp both elements, i.e. Likelihood AND Consequence then we cannot initiate the process of “Accepting or “Rejecting” the Risk.

If you want to put this to the test, try and put  together the financial consequencse of a data breach or a ransomware attack that stops you delivering your products and services!


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