Risk Management using First Principles
At Newport Thomson we take a First Principle approach to reviewing corporate risk. Reasoning by first principles removes the impurity of assumptions and conventions. What remains is the essentials. It’s one of the best mental models you can use to improve your thinking because the essentials allow you to see where reasoning by analogy might lead you astray.
Risk management is the process of identifying, assessing and controlling threats to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, inefficient internal processes, accidents and natural disasters.
IT security threats and data-related risks, and the risk management first principle strategies to alleviate them, have become a top priority for digitized companies. As a result, a risk management plan increasingly includes companies’ processes for identifying and controlling threats to its digital assets, including proprietary corporate data, a customer’s personally identifiable information (PII) and intellectual property.
Every business and organization faces the risk of unexpected, harmful events that can cost the company money or cause it to permanently close. Risk management allows organizations to attempt to prepare for the unexpected by minimizing risks and extra costs before they happen.