Thinking
A World of Risk a Decade on – And a new Road Map to Understand It
We published the Four Quadrants, a World of Risk and a Road Map to Understand it a decade ago, and the paper has anchored INSEAD’s Risk Management courses ever since.
So, in 2021, it was time to ask a few questions; “has risk management changed?” “Does the risk classification model still hold up?” “Have we learned anything new in the past decade?”
Turns out, we omitted a major risk genre – fraud and criminal intent. Welcome to the Five Quadrants, a revision of the original paper with updated examples and an additional risk category. With the new quadrant, the odds of slipping on that risk-banana-peel have just dropped markedly.
For risk managers, we add fraud, ransomware, and deception to the original risk model. It is no longer sufficient to think of risk only in terms of complexity (simple or interconnected) and distributions (normal or fat). It is time to invoke your Minority Report sleuth-detection skills and catch the criminals before they catch you.
Also available on: SSRN Link , INSEAD Link
A Methodology to Classify Risk
To progress, mankind must take risk. By reaching just beyond our capacity, we build new businesses, solve seemingly insurmountable problems, and come up with astounding inventions.
“Only those who will risk going too far can possibly find out how far one can go.” T.S. Eliot
But we often do an abysmal job of weighing the cost vs. the benefit of a risk. Large or indeterminate risks are frequently assumed for negligible gains if the risk is perceived as “unlikely”. Tiny risks with the potential to yield significant gains are sometimes avoided just because the risks are so visible.
“I don’t think much about risk. I just do what I want to do. If you gotta go, you gotta go.” Lillian Carter
Demographics: The Ratio of Revolution
The demographic metrics and inflationary circumstances that framed the January 2011
revolution in Egypt’s Tahrir Square were almost identical to those prevailing in Japan during the
violent 1968 student‐led revolts, in the United States when millions demonstrated against the
Vietnam War in the late 1960s to early 1970s, and in China when hundreds of thousands converged
on Tiananmen Square in 1989.