matching what matters (and why)
We have mentioned in several of our other pages the importance of framing assessments of risk and uncertainty in the context of WHAT MATTERS:
- The choice of 'death' versus 'killed & seriously injured' will cause different transport modes to come out as 'safest'.
- The savings product with the lowest risk of 'losing value this year' may not be the one with the lowest risk of 'not keeping up with inflation til I retire'.
It is fairly obvious that if a risk assessment is framed in terms of something other than what matters most to the decision maker it will be of limited use. What is perhaps less immediately obvious is that it is also very important WHY the key issue is so important, as the example below illustrates.
example - losing your shirt
Suppose you're worried about losing your shirt, and are assessing the associated risks. You've identified some potential loss scenarios including
a) lost with baggage when travelling
b) soiled/ripped whilst gardening
c) soiled/torn whilst wearing it in public.
But which is the riskiest? To answer the question we need to understand WHY you care so much about the shirt. Is it the cost of repair and replacement? Or that a particular shirt is an irreplaceable family heirloom? Or that you can't stand the idea of baring your chest in public?
The order of riskiness of the loss scenarios depends entirely on why you were so worried. If the concern is over being exposed bare-chested in public, then being lost with baggage or in the laundry is no risk at all. If the concern is over cost, then carrying out a high-risk activity like gardening (well we've wrecked a lot of shirts that way!) may be your top risk. And so on...
This simple example probably doesn't warrant a major assessment exercise, but there is an important general point that in choosing your measurement scale for risk you need to consider both WHAT matters to you, and WHY it matters.
avoiding pitfalls
Common contexts and focal areas for assessing risk and uncertainty include:
- enabling individuals to adopt desired behaviours/activities
(focus on individual risk of harm/loss if they do so) - balancing investment against risk reduction and other benefits
(focus on expected total average annual loss/harm) - planning for a one-off major event or decision
(focus on likelihood of key adverse/positive outcomes)
The more general point is that you need to think first about what matters to you and why before embarking on an exercise to explore risks, uncertainties and your response to them.