Methods

Science Behind Approach

The modern science and practice of risk measurement and management is currently within an early stage of its development. Its most notable application of it into business practices is exemplified by the establishment of global banking risk technologies and regulation. Although a significant amount of intellectual and financial capital has been invested in the pursuit of a universal risk measurement and management framework, practitioners and researchers have not been yet able to create one which is sufficiently general to be applicable to all industries. A number of outstanding issues still plague the field and no consistent and meaningful framework has yet been created.

The essence of the framework adopted by RiskAnalytica, called ObserverSymTM, is a theoretical structure founded upon the fundamental laws of physics ( Why theoretical physics?).

While it is commonly accepted that physics is at the verge of formulating its fundamental laws, many basic and evidentiary phenomena, such as awareness, consciousness, knowledge, strategy etc., cannot be directly derived from physical laws.

RiskAnalytica has developed a risk management framework in which the dynamics governing the evolution of a social system are said to result from a unique action principle. The principle is said to be fundamental to understanding the dynamics of the social system. A great deal can be learned from theoretical physics, in which the principle has already demonstrated a powerful means of understanding the dynamic laws which govern the evolution of the universe.

Overview of RiskAnalytica’s Theoretical Underpinnings and Framework

The product of RiskAnalytica’s research is a framework based upon the principles of observation, knowledge formation and application across business units, sectors and disciplines, resulting in a system that can be viewed as operating with a single purpose and action.

To manage a business (a system) and successfully execute its strategic goals, the business infrastructure requires:

1. well referenced and coordinated external and internal observations, capable of generating knowledge objectively;
2. The propagation of information within an organization which allows for the new knowledge to be applied to business practices;
3. A means of transforming the various forms of knowledge in order to allow for the exchange of ideas and conclusions (i.e. communication);
4. A comprehensible means of assessing and evaluating results for evidence based performance measurement.

Such a framework, typically referred to as a management information platform, emphasizes the management towards those future states which are perceived as rewards and away from those which are associated with risks. In order to ensure that such process can take place, an accurate, consistent and applicable information must exist. The framework provides an evidence-based risk management solution which generates an understanding of the cause and effect relationships within the business and its response sensitivity to its environment.

While risk management appears to be conceptually trivial, it is a mathematically complex and computationally intensive process. Sophisticated quantitative techniques (e.g. Markov state transition methods, non-linear regression techniques, Monte Carlo simulation, dynamic sensitivity analysis, simulated scenario outcomes, forecasting, standardized rates, net present value benchmarking) combine with improved data collection techniques to measure the broader spectrum of risk which may result from specific business interventions.

Endnote:

The analytical framework employed by RiskAnalytica to solve its clients’ business challenges is based upon the extensive studies and doctoral research of its founder, Paul Smetanin.

Working with Paul Kobak, a doctorial researcher in quantum gravity, a risk management framework that consistently ties together the mathematics of physics’ most successful theories with a meaningful articulation of decision analysis and risk for reward action is achieved.

The domains of study necessary to have derived a coherent risk management framework are diverse, that had included a focus upon:

• Economics: with a sub stream related to the evolution of thinking about the controversial concepts such as risk and uncertainty
• Physics: including quantum theory, general relativity theory, field theory, and quantum gravity
• Mathematics and statistics: including their applicability in the ordinary business life, through the development of mathematical models and use of simulation techniques
• Philosophy: to put framework in context by considering the history of intellectual thought
• Cognition: to put framework in the context of how humans reason their environment