Risk Interconnection Map is an unique way of presenting risk information. Comparing to Probability Impact matrices which display severity and likelihood, the interconnection map enables five dimensions to be visualized:
Risk likelihood – by the size of circles
Risk severity – by the darkness of the circles’ outlines
Risk domain – by fill colour
Risk interconnection – by lines connection circles
Strength of interconnection – by thickness of interconnecting lines
The financial crisis brought interconnectivity to the forefront of management issues. Organisations are starting to look into the relationships between risks. The annual World Economic Forum Risk Report charts a range of global risks arising from the new reality of interconnected challenges, interdependent stakeholders, and an accelerating speed of change. The report emphasises the need to appreciate and understand how risks evolve, how they interact to create potential impacts on stakeholders, and what trade-offs are involved in managing them.
When we accept that risk are interconnected it follows that we should consider interconnectivity in our risk analysis and management. When the interconnectedness of events is frequently cited as being at the root of large-scale failure, then why are risks still largely analysed and managed independently or in isolation. While there has been progress in looking at risks from a portfolio perspective and balancing the total amount of risk, more can be done to factor dependencies and linkages in the assessment of risks and how they are addressed.
Identifying and assessing interconnectedness promotes a broader and deeper understanding of the risks to your organisation. Risk Insights Explorer is a unique tool which can help organisations:
- Identify relationships between risks
- Ensure that risks are analyzed and addressed horizontally
- Understand the ripple effects of decisions
- Encourage proactive communication and engagement
- Identify clusters and highlight significant risk interrelations
to consider in the management of risks
- Inform risk responses and increase the effectiveness and efficiency of risk action plans.
In analysing the results of the exercise Risk Managers can identify:
- Risks that are positively correlated
- Risks that are negatively correlated
- Which risks have a causality relationship
- Which risks are highly interconnected
- Which clusters of risks are homogeneous and which are heterogeneous.
The Bank of England (BoE) stress tests examine the potential impact of a hypothetical adverse scenario on the health of the banking system and individual institutions within it.
From 2017, the annual cyclical scenario will be complemented by an additional scenario intended to probe the resilience of the system to risks that may not be neatly linked to the financial cycle — the ‘biennial exploratory scenario’.
Risk Insights Explorer’s unique functionality enables Banks’ to map the BoE exploratory scenarios and undertake advanced risk interconnection analysis.
The 2017 exploratory scenarios