No Risk Regulation

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

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What if there was no risk regulation?  What if your organization did not have a risk department, nor had any mandatory risk reporting?  What would change?

Ironically it is quite possible that your organization’s risk management would get better.  I have written before quite extensively on risk homeostasis, but to bring it down to earth and out of the fancy terms, consider crossing by either jaywalking in between intersections or crossing at the crossing signal at the intersection.  In which situation are you paying the most attention?  In which situation are you more risk aware?  In which situation are you more risk “alive”?

In his popular book David and Goliath, author Malcolm Gladwell talks about the “inverted U” effect.  The inverted U effect is when adding an element (in our context risk management) has an initial benefit.  However, adding more of the effect starts to have diminishing gains and then adding more starts to produce negative effects.  Too much is often worse than none at all. 

A trivial example is ice cream.  Having a half scoop of ice cream is better than just having a quarter scoop.  Likewise having a full scoop is better than half a scoop.  However, having to eat 50 scoops of ice cream is likely to make you very sick and wishing you had never even heard of ice cream.

So I ask again; What if there was no risk regulation?  What if your organization did not have a risk department, nor had any mandatory risk reporting?  What would change?  Has your organization gone past the point of the inverted U?