Imagination

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*

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In risk management, I will argue that imagination is as important, if not
more important than risk knowledge.  Risk knowledge is almost always looking
backward; it is based on what happened in the past.  Imagination is forward
looking; it is based on what might happen.  There is obviously a link
between the two in that what happened is often, but not always, a precursor
to what might happen.  However, almost always the future is never quite like
the past and often it is understanding the differences that matter most.

An imagination allows what I (not so humbly) call Nason's First Law of Risk
Management to work its invisible magic.  Nason's First Law of Risk
Management states, "The recognition of a risk automatically increases the
possibility and magnitude of the risk occurring if it is a good risk, while
also decreasing the probability and severity of it occurring if it is a bad
risk".

Risk management should be forward looking and not backward looking.  To look
forward, one must imagine.


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