A quick-reference guide to risk modelling concepts.
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Likelihood
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How likely the event is to occur at any time
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Frequency
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How often the event will occur in a set period
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Proximity
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How soon the event will occur
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Velocity
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How quickly the consequences occur after the event
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Aleatory
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Dependency on random change
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Epistemic
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Dependency on information
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Confidence
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How certain we are about our estimates
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Predictability
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How much future events correspond to known past events
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Credibility
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Whether the event could reasonably happen
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Interdependence
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Whether other events will contribute unpredictably
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Ambiguity
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When we are uncertain about the meaning of an event
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Persistence
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How long the risk remains valid
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Severity
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The magnitude of the impact
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Criticality
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The importance of the impacted asset to a capability
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Cascade
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Subsequent effects
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Irreversibility
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Whether the damage can be undone
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Recoverability
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How easily normal operations can be restored
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Scope
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How widespread the impact is
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Fragility/Antifragility
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Whether the system worsens or improves under stress
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Exposure
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The degree of investment in the outcome under threat
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Duration
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How long the effect of the event lasts
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Controllability
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Our degree of influence over causes or outcomes
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Detectability
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Our ability to recognise early indicators
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Mitigability
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Our ability to reduce or contain the impact post-event
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Dependency
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Reliance on outsourced capabilities or third parties
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Substitutability
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Flexibility in replacing compromised assets
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Asymmetry
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A risk with a mismatch in positive outcome for overcoming vs negative outcome in failing
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Opportunity
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A different view of risk focused on attempting to achieve positive outcomes rather than avoid negative consequences
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Systemic Risk
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Risks that propagate or occur beyond our control
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Cascading Risk
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Dependency chains or knock-on effects
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Concentration Risk
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Lack of diversification leading to single points of failure
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Knightian Uncertainty
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Fundamentally unknowable risks, where we cannot meaningfully estimate probability
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Volitional Risk
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A risk we have chosen to take in pursuit of goals
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Emergent Risk
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In complex systems novel, unmodelled outcomes may become apparent and should be anticipated
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Perceived Risk
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Subjective perception of risk drives action
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Appetite
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The amount of risk we are willing to take in pursuit of a goal
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Tolerance
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The variance from appetite we are willing to accept before taking action
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Confidence
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Over- and underconfidence distort judgment and are difficult to measure accurately
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Communication
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Effectiveness of information sharing affects understanding of risk
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Cognitive Bias
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Various cognitive biases affect how we perceive and react to risk
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Moral Hazard
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Incentives misaligned with exposure, i.e. "playing with someone else's money"
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Framing
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The story you tell about why to take/treat a risk
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Model Risk
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Reliance on an inaccurate or inappropriate model
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Comprehensibility
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Whether decision-makers understand the information presented, simpler models encourage action while complex ones discourage it
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Volition vs Fate
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Clarifies which risks are controllable
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