The Book of Risk Summary


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Originally published at: https://blog.12min.com/the-book-of-risk-summary/

Nowadays, the need to protect yourself from risk is more dominant than ever. Deregulation created a more competitive environment, where you have to take chances to survive and succeed. The days of safety and instinctive governing are long gone. Today, risk management rules.

What is risk management? Is it the elimination of risk or something else? How to take advantage of the opportunities that come your way?

You will find the answer below. Read on.

Who Should Read “The Book of Risk”? and Why?

In bureaucratic organizations, it is taken for granted that any risk is an awful thing. On the other hand, in a quick paced environment in which employees have to be fast in making choices, the risk is an essential ingredient to progress.

You face the same in your everyday life. Every choice you make eventually comes down to measuring dangers versus potential prizes. Dan Borge takes the risk management hypotheses utilized by some of the world’s most brilliant organizations and reconstructs them down to understandable principles that can be used by anyone. We recommend “The Book of Risk” to senior executives, as well as experts with the possibility to acquire those positions (if they make the right choices).

About Dan Borge

Dan Borge, Ph.D., worked for Bankers Trust and was the architect of the RAROC risk-management system. Previously, he was an aeronautical engineer working at Boeing. He holds a doctorate in finance from Harvard Business School.

"The Book of Risk Summary"

Risk management is the capacity to acquire control over the occasions that can change your life. It can be your guide, whispering in your ear about when to grab the opportunities life gives you and when to pass on the questionable ones. The matter of risk management comes down to two standards:
  • Staying alert that any undertaking conveys dangers.
  • Realizing that if you take action, you can build the chances of good results and reduce the possibility of bad ones.
Even if you may think that your profession does not require it, risk management is not something unconnected to you.

Just think about it.

Each choice you make – getting out of the bed in the morning, having some espresso, having a cigarette or getting in the driver’s seat of your auto – carries some portion of the risk. Measuring dangers versus benefits is your obligation. However, no shortcut exists that empowers you to anticipate hazard perfectly.

Then how does managing risk start?

Simply, with defining the unwanted result you wish to stay away from. Defining the effect you want to maintain a distance from is vital to the risk management process.

However, how can imagine every possible risky situation that may happen?

You cannot. However dangerous it is to ignore it altogether, defining all likely unwanted results is a step easy to neglect or to underestimate, because there just is no general definition of an adverse outcome. Any given circumstance conveys the likelihood of more than one terrible outcome.

So what can you do?

Be unequivocal about the results you look to maintain a strategic distance from, as well as those you lean toward.

In a perfect world, when you know all the likely results, you come to a decision tree that discloses to you when the benefit that you look for exceeds the hazard you are willing to accept in making a specific move.

Often, for the sake of being practical, you should disentangle your choices, ideally without disregarding any essential components. Doing it well is the way to proper and efficient risk management.

Risk management is quickly expanding as a lofty expert field keeping pace with specialists, legal counselors, and CPAs. Budgetary foundations re-assess their risk postures daily. Furthermore, risk management likewise applies to medicine, seismology, engineering, and some other risk-averse fields.

Key Lessons from “The Book of Risk”:

1. The Power of Belief 2. Intuition versus Analysis 3. Volatility

The Power of Belief

You go to work every day since you trust you have a shot at getting to work securely. Remember, however, that there is a definite chance that you are incorrect in your conviction. In all actuality, you should follow up on your informed beliefs. Choosing not to act - remaining home for example - has results too. Two components become an integral factor when you decide whether to take a risk: your convictions about the possible outcomes and your inclinations for the settlements that would come about as opposed to the potential misfortune. You need to follow up on your own beliefs in settling on your choice.

But, just how smart is it to take after only your beliefs, without appropriately analyzing the circumstances?

This question brings us to the second Key Lesson:

Intuition Versus Analysis

So, what do you think, is it smarter to take after your instinct or to be scientific?

Depending on scientific data implies ignoring everything that you should know, but don’t. More often than not there is a lot that you do not have the foggiest idea about. The rational approach neglects the power of the unconscious to shape an instinct that will push you towards the correct decision. Then again, if you overlook analysis, you may end up with a messy or even silly decisionmaking process.

Nowadays, to be a decent risk manager, you should have analytical models. However, stay aware that if you just depend on diagnostic models, you cannot be a risk manager at all.

Volatility

Volatility is a vital factor to consider in studying your risk. A circumstance with a vast number of conceivable results has more prominent volatility than a case with a sheer scope of possible results. You can quantify volatility as the contrast between two individual outcomes, one wanted and the other unwanted.

Evaluating the volatility of a circumstance compels you to ask:

“Volatility of what exactly?”

If you can reply by defining the drawback you want to keep away from - and that is not as simple as it seems - you have taken an incredible jump toward measuring the level of the risk you confront.

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“The Book of Risk” Quotes

[bctt tweet="Doing nothing can mean missing valuable opportunities or allowing threats to materialize." username="getnuggetapp"]

[bctt tweet=“Instinctive responses may not always work well in modern industrialized societies teeming with millions of people.” username=“getnuggetapp”]

[bctt tweet=“An institution merely redistributes the consequences of risk to its individual human constituents.” username=“getnuggetapp”]

[bctt tweet=“The better-managed financial institutions can now estimate their risk exposure to changes in the financial markets every day.” username=“getnuggetapp”]

Our Critical Review

Some books have to be read slowly and carefully to be understood. “The Book of Risk” is one of them. Risk management is a complicated subject, and despite Borge’s ability to get to boil down the matter to its basics, you will most likely find yourself mulling over the difficulties found on each page of this compelling book.