In June, The Cruywagen IRMSA Risk
Foundation recently hosted its inaugural sunset session in Johannesburg. The
keynote address was delivered by Dr Steven Briers who shared his thoughts on
elements that make up the ‘DNA of all risks’.
The purpose of these sunset sessions
is to empower members of IRMSA to enable them to grow their skills and to
ensure that the standards of risk improve on a continual basis. Usually, the
presentations are thought provoking and challenge risk professionals to look at
their roles in a different but more insightful manner – this session was no
Dr Briers identified elements
present in all risks and he wisely began by sharing his definition of risk to
ensure that everyone is on the same page. His definition is: "Risk is human
behaviour with imperfect knowledge about future outcomes which can vary
intended rewards”. Another key definition shared was that of Bill Anderson who
says: "A risk is a risk – they affect earnings potential, whether they come from
fluctuations in commodity price, [equipment] fire, change in legislation, or
According to Dr Briers the first
component of the risk DNA is that risk is always linked to a desired reward. A
risk is linked to strategic goals, financial and operational targets as well as
The second component is that risk
involves interested parties such as shareowners, suppliers, customers, employees,
authorities, communities and so on. Therefore the risk manager need to take cognisance
of the stakeholders and how they might be affected.
The third component is that risk
has a subject matter which is usually some form of assets. The assets can be land,
buildings, equipment, legal assets, human assets, intellectual assets, financial
reserves, and so on.
The fourth component is that risk
affects some kind of value. In a corporate, value can (among others) range from
financial value, strategic value, competitive value, time value and replacement
value. Dr Brier described the fifth component as follows; that a risk relates
to action of some sort on the part of the organisations. Actions may range from
incoming processes, purchasing, recruiting, acquisition, outgoing processes,
advertising, investments and so on.
The seventh element is that a risk
is linked to the change agents such as climate, competition, crime, currency,
inflation, interesting rates, labour, legislation, locations, markets and many
other change agents which determine the manner and unfolding of a risk for an
The eight element, according to
Dr Brier, is that a risk is realised by some sort of a trigger which may be an
accident, breach, breakdown, cancellation, default, delay, emission, failure,
fault, interruption, malfunction, negligence, omission and/or shortage.
Furthermore, the ninth and tenth
components of risks are that they have a time dimension and some degree of
probability. In terms of the time dimension of risk, there are cyclical
factors, seasonal dynamics, timing, duration, simultaneity and regional differences.
In terms of probabilities, there tends to be statistical measures, likelihood,
correlation, volatility, aggregation, timing and relative frequency.
He adds that the eleventh
component is that risk is shaped by existing controls, among the many controls
are mitigation interventions which may include financial positions, hedging,
insurance, securitisation, management positions and compliance.
Dr Brier states that the twelfth
component is a lack of perfect information. He points out that lack of perfect
information around probability, control, compliance, compliance and market
information. Other aspects this component may be lack of perfect information such
as liquidity ratios, stability ratios, capital at risk, yield curves, cost of
losses, cash flow at risk, earnings at risk and value at risk.
Lastly, the last component of the
thirteen elements of the DNA of risk is the human determinants. The human
elements may include complacency, compromise, concealment, denial, risk taking,
error, negligence, omission, trauma, unauthorised, stress, pride, power and