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An opportunity you can’t afford to miss. Does this ‘promise’ contain references to risk management? Risk management is simply making better decisions in uncertain times. Nobody knows what the future will bring. But we can make informed decisions based on calculations of the probable outcome. Probability theory was developed to analyse risk management problems. It applies to calculating risk associated with insurance premiums, durations of unemployment, and mortgage lives, for example.
In our latest TruevoTalks podcast, we speak to Alex Sidorenko, Chief Risk Officer of the Risk Academy, and Claire Muscat, Head of Enterprise Risk at Truevo, to better understand risk and risk management.
Named the best Risk Manager of the Year in Europe for 2021, Alex provides a down-to-earth approach to the subject. He says, “If there are multiple possible futures, we need to somehow base our judgement on our assessment of these future scenarios. Practically speaking, risk analysis and probability theory can help ecommerce businesses decide whether they pay this much for a product at that margin.”
Not the film. Alex talks about corporate and enterprise risk management and how it has become a dumbed-down version of ancient art. “People have taken the 500-year science of risk management and made it more generic and colourful—something they could monetise. The matrix was born. Corporate risk management departments turned it into something you must do because standards and best practices tell you to. There’s no scientific background and no validation behind whether it actually makes a difference or not. There’s a push to go back to viewing risk management as a decision-making tool, as it was intended.”
Come to think of it. Risk management is something we can use in business and everyday life. Do you rent or buy your office space or company vehicle? Should I immigrate, or where should I go on holiday or open my new company office? Another pertinent question many ecommerce companies are asking themselves is: Which of my departments can work remotely and which ones need to be in the office? Or do I institute a four-day workweek and implement shift workers?
Claire from Truevo explains how the company approaches risk management; “It’s not just an afterthought. We integrate risk management into the initial decision-making process. It can then trickle down to what you do every day. Everybody in the company is collectively using risk management in what they do with the tools we have created for them. That’s where every employee can become our gatekeeper. We create models people can use to make quick decisions. You can appreciate that people have to think on their feet in the payment industry. These decisions need to happen in a second.”
In 2022, Daniel Kahneman and Vernon Smith were awarded the Nobel Prize in Behavioural and Experimental Economics for their opposing views on the rationality of individuals when making economic decisions. Alex talks about neuroscience and explains how the work done by Kahneman and Smith explores human perception while making decisions. “When we are faced with unpleasant decisions, our brains choose between various templates based on scenarios we’ve experienced before. When we face situations unknown to us, our brains often give us the wrong answer, or simply say; ‘No’.”
Imagine an email promoting a product you like. You click on the link and go to a website. Your gut tells you there is something wrong with the site because they don’t list any contact details. But you want that pair of shoes. So you go ahead and click Buy. It turns out the website was fake, and you lost your money. In this case, the computer says ‘no’, but your actions say ‘yes’.
Alex and Claire further discuss how companies can improve their level of risk management as they grow and Risk Management Week happening in October.
Listen to the full TruevoTalks podcast here.
Disclaimer: This content has been written for informational purposes only. It should not be construed as legal or business advice.
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