Disruptive Markets  

   Managing Uncertainty    

Causal Capital ~ The Knowledge Capital Specialists


I can see these two acronyms becoming synonymous with each other at an application level when it comes to risk assessment and evaluation. Let me elaborate further, just for a moment.

There are two trends in risk management today which are quite exciting to be tangled up in. The first is how the planet is taking to the ISO 31000 risk management standard and a good thing might I add. I truly believe the world is potentially a better place when the people within it go about what they do with an attitude to proactively engage uncertainty they experience in their objectives. ISO 31000 is popular because its Principles Guidelines document is a light easy read and a comprehensive brief that describes this proactive risk management process.

What ISO 31000 proposes is very palpable and applicable to much of what we do.

The practice of ISO 31000 can be summarised by its five step process of Establish Context, Identify Risk, Risk Analysis, Risk Evaluation and a Treatment Plan. This simplicity is encouraging a huge following of risk practitioners but it doesn’t come without its traps. There is always a catch, at least one of them with many things we endeavour to do that appear on the surface as being too straightforward. In the realm of risk management, that catch can be found in the Risk Analysis step that ISO 31000 describes. The risk management standard addresses this hurdle with another document labelled ISO 31010 Risk Assessment Techniques, all good yes?

Well in theory yes but someone, somewhere has to entertain the modelling exercises required for this risk assessment step. Without this, the quality of our risk management framework or perhaps the completeness of it is compromised.

The issue here is that not all risk managers are ‘tech savvy’ quants, they often understand what is required, many of them are also very bright but the models are out of reach and often for no other reason than the software toolbox is kind of missing. Microsoft Excel in its default form is a tad limited and lacks extensible statistical models, so we’ll draw a line under that for the time being. Don’t misunderstand me, I use Excel with pleasure, it’s a fantastic teaching tool for modellers but when you need to do some really heavy numerical lifting, it requires a lot to be desired of.

The other exciting trend that is kicking on in the background of risk management is the growth of analytics and Big Data solutions, not only as concepts but as usable interfaces for quantifying uncertainty.

Software packages such R-Project or Python with their massive extensible statistical libraries do well to model uncertainty and they are very appealing but you need to be a programmer to take advantage of them. Oh dear, that takes the general risk practitioner back to square one doesn’t it?

Not any more !!!

Let’s swing in Watson. IBM have been working on a massive Cognitive Computing engine that takes all the heavy lifting work out for those that need to analyse uncertainty and for risk managers, this is a frontier that begs for further investigation. It should, if we are diligent with our work, entice us all.

Even Watson’s method of delivery is ‘ISO 31000 like’ which I quote verbatim: “Observe, Interpret, Evaluate, Decide”.

This is just too close to the ISO 31000 risk management approach to be true but true it is and the robustness of this system is refreshing. As a risk analyst, I am impressed with Watson’s capabilities but blown away with its simplicity of use and quants need to watch out, we could end up being replaced by Watson. That I kid you not.

IBM Watson | More Details

This is a game changer and a disruptive market space we are going to explore in more detail at Causal Capital. I seriously encourage risk analysts to take a look at some of the video’s IBM have published that demonstrates Watson’s functionality because the application to your work is about to change the way you may model risk.

For some risk practitioners this technology might pull them headfirst into the world of risk modelling and without the pain. It might take us all on a journey that will inevitably improve what we do which in the world of ISO 31000 and risk management is to reduce uncertainty.​​

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