A few weeks ago, I reinstalled a network in a client’s home. A local creek had flooded and deposited two feet of water and mud in his study. I asked him if he had flood insurance and he replied “No, it is too expensive.” I, then, asked him if he had done anything to shore up his property to prevent a recurrence. Again he replied, “No.”. He explained that the creek only flooded if there were the right combination of rainfall, high winds and high tides. This confluence of events predictably occurs once every twenty five or more years. He believed he would have moved before he suffered similar damage and that the cost of prevention would exceed the cost of repair.
The conversation started me thinking again about the measurement of risk. That is the basis of actuarial science; and I won’t pretend to know much about that. But I do know that it is possible to estimate loss and to, therefore, project the impact of that loss on a business.
For example, you know that the projected lifetime of a personal computer is three to five years. You also know that all hard drives fail. That means that some time between three to five years after the purchase of a pc, the probability of hard drive failure is at its greatest. If you only use the pc as a terminal and do not store anything on it, then your risk of loss is much less than if you use that pc to store all your business and personal data. In the first instance, you merely have to replace the hard drive and reinstall the operating system and applications. In the latter, you have to replace the hard drive, the applications, and the data. This is much harder, because the data is unique to you and only available from you. The hours you spent creating that data are what is really at risk. Add to that the potential for lost business during the system down time, employee idleness, etc; and you begin to get a true measure of your risk.
Once you have a viable number for potential loss, you can begin to define the measures you are willing to take to prevent that loss or minimize its impact. Like my client, you may determine that the risk is not worth the expense of prevention. Or you may decide that you need to establish backup routines or other measures to minimize or eliminate the loss.
Measuring risk, therefore, becomes the first step towards managing it.
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