unknowable risk

An unknowable risk is a potential threat to an organization's processes that is not known and cannot be quantified or controlled.

An unknowable risk is a potential threat that is not known and cannot be quantified or controlled. 

Unknowable risks are different from unknown risks, which are operational risks where the event that could cause a loss is known, but the probability of its occurrence is difficult to predict. An unknowable risk is also known as a black swan event.

Unknowable risks are a form of sunk costs. They are totally unpredictable which makes it difficult for chief risk officers to put adequate control mechanisms. To manage unknowable risks, companies should ensure business processes remain flexible, ensuring variable costs and diversifying across products and markets whenever possible. Businesses should also employ experienced risk managers and make sure that the data collected from organization-wide risk assessments is accurate and up-to-date.

 

This was first published in July 2014

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