RISK MAPS ARE OUT - OPTURE IS IN!
This is how you bring sustainable added value to risk reporting!
The Volatility of the markets is increasing significantly and a reversal of the situation is not expected in the medium to long term. Risk Map with the top 10 event risks as Risk managementbasis and reporting basis is critical in ever more volatile markets because they are dynamic, correlated and cannot consistently capture market risks, thus only showing a small, often harmless part of the actual risk landscape. The risks that actually pose a threat to the assets are caused by high Variance (Sigma), Strong Correlations and market volatilities that remain invisible in a two-dimensional matrix. Companies that continue to exclusively focus on Risk matrices They make decisions based on a distorted picture and overlook exactly those risks that pose a threat to them. Resilience and future-proofing endanger.
Background: Use of Risk Maps with the top 10 event risks for risk management
In many companies, the Risk Map It remains the central instrument for Risk management. Risks are distributed along the axes Probability of entry and Impact evaluated and in a two-dimensional Matrix categorized. Particular focus is placed on those risks that are Gross/net expectation value They are in the red area. This is almost exclusively due to Discreetly distributed event risks – such as losses due to the failure of a supplier, a fire in a property, a cyber incident or a production stoppage. These risks are usually well insured and have been part of classic risk reports for decades. But this view is increasingly inadequate: The Risk Map constitutes only a small, often harmless part of the actual risk landscape.
Problem: Dangerous risks lie outside the Risk Map
The risks that companies can actually endanger are rarely the „top 10 event risks“ from the Risk Map. These are usually already known in advance and are controlled by insurance policies or operational measures (= lower net expected value). The endangered species Risks are much more likely Strategic risks and above all constantly distributed market risks such as economic downturns, currency exchange fluctuations, interest rate changes, and fluctuations in commodity prices. These risks are Not subject to taxes on traditional insurance policies, occur frequently correlated on and influence each other. Their Impact is massive – significantly higher than the damage from a single event risk. However, they hardly appear in the Risk Map because they Expected value low (due to the fluctuation in both areas) is, their Variance (Sigma) However, this variation is extremely high. It is precisely this variation that led to the global financial crisis in 2008 and is still a significant factor in the high unemployment rates today. Risk Exposures many companies are responsible for this.
Cause: Risk Maps do not capture continuously distributed market risks
The classic Risk Map is a static, two-dimensional instrument, which is based on a snapshot. It assesses risks exclusively based on the Acquisition value – that is, based on the combination of the probability of entry and the severity of the damage. Continuously distributed Market risks However, they work completely differently – they exert their effect through Volatility, Correlations, Spreading, Trend breaks and cascade effects. Their value is often low because they do not occur as a single event, but as a series of events. continuous market movement, i.e., it has negative and positive effects. Their Variance (Sigma) On the other hand, it is extremely variable – and it is precisely this variability that determines the risk to the stock. Therefore, market risks remain invisible in the risk map, even though they represent the greatest threats. Strategic risks The monitoring values will only become critical at much later times because they are based in the future. The risk exposure is therefore still too low at the time of reporting within the next 1-3 years, using the Risk Map, to become noticeable.
Companies that continue to solely rely on risk maps and „top 10 event risks“ make decisions based on a distorted and incomplete risk picture.
Solution: Expansion of the risk reports with additional information
In increasingly volatile markets, it is imperative to include risk reports in the Strategic risks (-> today lower exposure, BUT high exposure tomorrow) and constantly distributed market risks (-> lower expected value, BUT high variance) Volatilities (Sigmas) and – if available – Simulation results How Value at Risk (VaR), Expected Loss or Tail risks to expand. These indicators show the actual risk dynamics and make it possible to endangered species Developments are visible. They can also be Without simulation for all risks, the Sigmas and Sigma² calculated so that both event risks and market risks are fully captured.
Message for risk managers and decision-makers
Easier upgrade of your risk reports with the following measures:
Expansion of the Risk Map to include continuously distributed market risks and strategic risks (also possible without simulation!)
Expansion of the Risk Map to include additional information such as risk drivers, causes, and, if applicable, risk quantification figures
In addition to structural analyses, also present trends and developments
Describe interdependencies and dependencies between the risks
Evaluate control measures based on efficiency and effectiveness
Report the utilization rate of risk-bearing capacity
Show how strongly the company or the planning of environmental fluctuations depends on sensitivity and scenario analyses. Show how stable or sensitive the company reacts in volatile markets
Expansion: Integration of all risks across the company into the risk report
A company-wide Risk management system must ensure that risks such as those arising from regulatory issues ISMS, ESG, AI Act, IKS, Compliance, SCDDA, Auditing, HinSchG, These data are grouped together centrally and consolidated into a uniform report.
Inclusion of all risks in the enterprise-wide risk inventory
Extension of risk assessment methods and relevance matrix
Conducting scenario analyses
Definition of specific risk ratios and early warning indicators
Integration of all risks into regular reporting
A holistic risk report is only relevant for management when all risk types – from ESG to ISMS/NIS2, compliance, IKS, AI Act, and ERM – are combined in an integrated model. It is of particular importance that in the ERM area, in addition to the discretely distributed event risks, the constantly distributed market risks and strategic risks are also reported. Only the joint presentation of all risks in a report creates a complete picture of the risk exposure, shows interactions and concentrations, prevents silo thinking and double-counting, and enables consistent prioritization across all topics. This creates a single, clear decision framework for management that bundles measures, responsibilities, and control impulses while simultaneously fulfilling audit and compliance requirements.
