A 3-D Look at Risk

As more institutional boards take risk seriously as a matter of governance oversight, it is important to note that a 3rd dimension is emerging to join "likelihood of occurrence" and "scale of impact" as analytic factors. Classifying possible risks into zones based on likelihood and impact is a way for institutions to focus management attention on the events that matter most. "Velocity," or the speed at which an exposure can impact an organization as described in a monograph by Ng Siew Quan and Alvin Chiang of the PwC Singapore office, is emerging as a third dimension to the conventional risk analysis.

Triangle thinks this 3-D way of looking at risk is a real step forward. In our experience, managers often underestimate the speed at which crises unfold, even when accurately assessing the likelihood and scale of impact. Ubiquitous digital media and communication tools only add to both the severity and velocity factors. When we hear board members or administrators say, "events have overtaken us," we know that a high-velocity situation overcame even the best containment plans. We suggest boards ask administrators how they incorporate the velocity factor into risk analysis and plans for mitigation.