TVA p3 00 RISK 151022

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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.

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TVA p3 00 RISK 151022

  1. 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. 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. 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. 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. 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. 6. Somehow funds have to be available to meet the costs when there is a risk event. MULTI DIMENSION IMPACT ACCOUNTING
  7. 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. 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. 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. 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. 11. Risks may be: … man made; … natural; or … social. MULTI DIMENSION IMPACT ACCOUNTING
  12. 12. Risks may be: … Geopolitical; … Environmental; … Societal; … Technological; or … Economic. MULTI DIMENSION IMPACT ACCOUNTING From World Economic Forum 2015
  13. 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. 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. 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. 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. 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. 18. There is no reference to SYSTEMIC RISK, GREED AND STUPIDITY. MULTI DIMENSION IMPACT ACCOUNTING
  19. 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. 20. BETTER METRICS is a step towards BETTER DECISIONS that can reduce RISK and result in BETTER OUTCOMES. MULTI DIMENSION IMPACT ACCOUNTING
  21. 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. 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. 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

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