Risk is not treated in a realistic manner in conventional accountancy and financial analysis. The idea that risk may be accounted for simply by multiplying the potential cost of the risk by the probability of this risk happening in a specific time period is insufficient, and does not enable policy makers to make informed decisions. Something better is needed.

1. File: TVA-p3-00-RISK-151010.odp Peter Burgess (c) All rights reserved
RISK
BETTER WAYS TO LOOK AT RISK
TRUE VALUE ACCOUNTING

2. CONTEXT
This slideset is a Work-in-Progress
and will be updated from time to time.
It is part of a series that aims to
describe the extremely complex
socio-enviro-economic system that
we live in, and how better metrics will
make this system work better.
TRUE VALUE ACCOUNTING

3. EXPLANATION
This slideset is A WORK-IN-PROGRESS. It will be
upgraded periodically. It is part of a series of more than
50 slidesets. Navigation to all of these is available here:
FEEDBACK is welcome. Please email to Peter Burgess …
peterbnyc@gmail.com … with a catchy phrase in the
subject line so that it gets attention, and please identify
the specific slideset(s) involved. This explanation is
version v150801. The most current text is available at:
MULTI DIMENSION IMPACT ACCOUNTING
http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=txt00010199
http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=N1-Slidesets-p3

4. RISK …
The idea that you can measure and therefore
manage risk based simply on this formula is
completely invalid:
Cost of the Likelihood of the
risk event risk event happening
MULTI DIMENSION IMPACT ACCOUNTING
XRisk =

5. … rather multiple issues must be considered
separately and together …
… If the event happens … what will be the
cost?
… How frequently will the event happen?
… What will it cost to reduce the frequency?
… What will it cost to reduce the cost or the
risk event when it happens?
MULTI DIMENSION IMPACT ACCOUNTING

6. Somehow funds have to be available to meet
the costs when there is a risk event.
MULTI DIMENSION IMPACT ACCOUNTING

7. It may be valid to calculate the net present
value (NPV) of a future flow of profits using a
method that 'discounts' the future …
MULTI DIMENSION IMPACT ACCOUNTING

8. It is, however, absolutely wrong to use a
similar discounting computation to cost and
plan for most future risk events.
MULTI DIMENSION IMPACT ACCOUNTING

9. Risk analysis MUST reflect the full cost of a
future risk event AND risk management must
include plans for all of this cost to be funded.
MULTI DIMENSION IMPACT ACCOUNTING

10. Unfunded risk is a serious problem … rather
similar to the problem of unfunded pensions in
corporate business and government finance,
but potentially very much larger.
MULTI DIMENSION IMPACT ACCOUNTING

11. Risks may be:
… man made;
… natural; or
… social.
MULTI DIMENSION IMPACT ACCOUNTING

12. Risks may be:
… Geopolitical;
… Environmental;
… Societal;
… Technological; or
… Economic.
MULTI DIMENSION IMPACT ACCOUNTING
From World Economic Forum 2015

13. Geopolitical Risks include:
… Interstate risks;
… State collapse or crisis;
… Failure of national governance;
… Terrorists attacks; and
… Weapons of Mass Destruction.
MULTI DIMENSION IMPACT ACCOUNTING
From World Economic Forum 2015

14. Environmental Risks include:
… Extreme weather events;
… Failure of climate change adaptation;
… Natural catastrophes;
… Biodiversity loss and ecosystem collapse;
… Man-made environmental catastrophe.
MULTI DIMENSION IMPACT ACCOUNTING
From World Economic Forum 2015

15. Societal Risks include:
… Water crises;
… Profound social instability;
… Spread of infectious diseases;
… Food crisis;
… Large scale involuntary migration;
… Failure of urban planning.
MULTI DIMENSION IMPACT ACCOUNTING
From World Economic Forum 2015

16. Technological Risks include:
… Cyber attacks;
… Data fraud and theft;
… Misuse of technology;
… Critical information infrastructure
breakdown.
MULTI DIMENSION IMPACT ACCOUNTING
From World Economic Forum 2015

17. The WEF risk report in January 2015 did not
reference the risk posed by the systemic
dysfunction of the socio-enviro-economic
system and the way the dominant metrics of
this system only deliver reward to owners of
financial wealth and exploit everything to do
with human capital and natural capital as if
they have no value!
MULTI DIMENSION IMPACT ACCOUNTING

18. There is no reference to SYSTEMIC RISK,
GREED AND STUPIDITY.
MULTI DIMENSION IMPACT ACCOUNTING

19. The lack of MONEY should not be a constraint
on REDUCING RISK … the real constraint is
the lack of KNOWLEDGE and the lack of
SYSTEMIC SOLUTIONS for dangerous system
dysfunction.
MULTI DIMENSION IMPACT ACCOUNTING

20. BETTER METRICS is a step towards BETTER
DECISIONS that can reduce RISK and result in
BETTER OUTCOMES.
MULTI DIMENSION IMPACT ACCOUNTING

21. BETTER METRICS will be as rigorous about
IMPACT on SOCIETY (PEOPLE) and the
ENVIRONMENT (PLANET) as conventional
money accounting and economic measures
like GDP are for COMPANY PERFORMANCE
(PROFIT).
MULTI DIMENSION IMPACT ACCOUNTING

22. REMINDER
This slideset is A WORK-IN-PROGRESS. It will be
upgraded periodically. It is part of a series of more than
100 slidesets. Navigation to these is available here:
FEEDBACK is welcome. Please email to Peter Burgess …
peterbnyc@gmail.com … with a catchy phrase in the
subject line so that it gets attention, and please identify
the specific slideset(s) involved.
http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=N1-Slidesets-p3
TRUE VALUE ACCOUNTING

23. THANK YOU
Some links and contact information:
Email Peter Burgess … peterbnyc@gmail.com
Peter Burgess LinkedIn profile
https://www.linkedin.com/in/peterburgess1
Link to TrueValueMetrics.org website
http://www.truevaluemetrics.org/
Link to navigation to other resources:
http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=list0100-MainNav#1
TRUE VALUE ACCOUNTING