Mandatory Obeisance Sparks Backlash
In the realm of business, risk management and compliance are indispensable functions, yet a critical examination of certain practices reveals a lack of scientific rigor. One such practice is the Risk & Compliance Self-Assessment (RCSA), a method employed by many organizations to communicate their analysis of risks.
The RCSA process is founded on statistical analysis laws, specifically those involving stochastic processes - sequences of randomly determined observations. However, the author of this critique contends that risks are not uniform, yet RCSA charts and graphs often appear legitimate without questioning their uniformity.
Risks, statistically, tend to have a specific shape, such as a normal curve or a skewed curve. But in an RCSA, the shape of risk is uniform, which raises concerns about the accuracy of the assessments.
The RCSA method relies on Risk Self-Assessment Sessions (RSAS), where risks are assigned severity and probability based on subject matter experts' recall in a facilitated session. While this approach may seem straightforward, the author questions the reliability of memory in determining risk levels for an organization.
Moreover, the RCSA is based on a small, biased sampling of data (memory), which contradicts the law of large numbers, a fundamental principle in statistics. If not using a stochastic process for measuring risk, one is essentially guessing.
The method using a stochastic database of risk events for RSAs was developed by Douglas Hubbard. This approach aims to provide a more accurate and reliable assessment of risks, moving away from the reliance on memory and subjective opinions.
The author's aim is to highlight where firms diverge from serious risk management into practices that appear rigorous but lack substance. The author criticizes the use of RCSA as a conclusion for risk assessment, stating that it should be a starting point for further analysis.
In conclusion, while risk management and compliance are pivotal functions, it is crucial to ensure that the methods used to assess and manage risks are grounded in scientific rigor. The author's critique serves as a call for businesses to reconsider their risk management practices and adopt more reliable methods, such as those based on stochastic processes, to ensure accurate and reliable risk assessments.
Read also:
- Goodyear in 2025: Advancement in Total Mobility through the Launch of Kmax Gen-3 by Goodyear
- Electric SUV Showdown: Vinfast VF6 or MG Windsor EV - Your Choice Revealed
- United States Secures $632 Million to Fuel Electric Vehicle Revolution
- IM Motors reveals extended-range powertrain akin to installing an internal combustion engine in a Tesla Model Y
