1. 1. MULTI DIMENSION IMPACT ACCOUNTING File: MDIA-p3-14-RISK-150725.odp Peter Burgess (c) All rights reserved MDIA RISK SOME BETTER WAYS TO LOOK AT RISK
2. 2. MULTI DIMENSION IMPACT ACCOUNTING WORK-IN-PROGRESS. SLIDESET STILL IN DEVELOPMENT. UPDATES WILL BE POSTED OVER THE NEXT SEVERAL WEEKS
3. 3. THE MDIA SLIDESET SERIES This slideset is part of a series being prepared to describe the concepts of TrueValueMetrics and being used to develop better metrics for the complex Socio-Enviro-Economic-System that now exists in the 21st century This link enables easy navigation to the other slidesets in the series: http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=list0200-Burgess-p3-Slidesets MULTI DIMENSION IMPACT ACCOUNTING
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
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
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
16. 16. Technological Risks include: Cyber attacks; Data fraud and theft; Misuse of technology; Critical information infrastructure breakdown. MULTI DIMENSION IMPACT ACCOUNTING
17. 17. The WEF risk report in January 2015 did not explicitly reference the risk posed by the systemic dysfunction of the modern global 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. 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. Follow up: Request for Feedback Getting these ideas fleshed out into a clear, simple but comprehensive structure is a big job and remains a work-in- progress. Many organizations are making progress with this, but there is no broad universal framework yet that will enable all the pieces to come together and work efficiently. I would like to get feedback from anyone and everyone to help move this initiative forward. While I have some clear concepts about much of this architecture, there are many details that I do not know enough about and need help. So, please feel free to contact me (peterbnyc@gmail.com). Please put something relevant and catchy in the subject line. MULTI DIMENSION IMPACT ACCOUNTING
23. 23. Some links and contact information: 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 for MDIA slidesets http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=list0200-Burgess-p3-Slidesets MULTI DIMENSION IMPACT ACCOUNTING