In anticipated direct events, identification and use of risk mitigants mean better preparation to reduce losses in analyzed situations. This comprehensive approach ensures organizations are not only prepared for known risks but also develop resilient systems that can adapt to unexpected challenges.
1. Precautionary Measures
Ex ante actions that reduce the possibility of the considered situation occurring through proactive planning and prevention.
2. Insurance & Hedging
Strategic ex ante actions that reduce the magnitude of loss should adverse events occur, providing financial protection.
3. Contingency Planning
Ex post actions designed to minimize loss magnitude when challenging situations arise unexpectedly.
The Power of Serendipitous Protection
The same mitigants can reduce losses in unconsidered situations. For example, contingency plans for one disaster may work for an unforeseen one. These benefits are unknown beforehand and may be attributed to serendipity or luck, but are realized because precautions, insurance, or contingency plans were already in place for other scenarios.
Real-World Examples
- Beach Sunglasses Protection: As a precaution, you wear sunglasses on the beach to protect against harm from the sun, and they protect against wind-blown sand, debris, and potentially thrown objects.
- Aspirin’s Dual Benefits: As a contingent action, you take aspirin to reduce muscle aches and pains that had caused loss of enjoyment, and it prevents or reduces the chance of heart attack.
Our Loss Forecasting Expertise
Spero Risk Associates have worked as former risk managers, developers, validators, and regulators. Our variety of experiences give us a unique edge on our competition in all aspects of stress testing and scenario analysis & design, especially in CECL, CCAR and DFAST.
In fact, we have built a variety of hypothetical and historical scenarios for both credit and market risk, as well as joint credit-and-market loss scenarios years before the crisis and CCAR.
Our Analytical Framework
We start with the following fundamental questions that drive our comprehensive analysis:
1. What can happen?
Comprehensive scenario identification and risk mapping across all potential threat vectors and operational domains.
2. How can it hurt you?
Detailed impact analysis examining both direct and indirect consequences across your organization.
What We Determine
1. Adverse Shocks: We identify differences between current conditions and possible, unfavorable conditions tailored specifically to your organization’s unique risk profile.
2. Sensitivities: We analyze the responsiveness of items of interest—whether it’s an instrument, portfolio, firm, or industry—to environmental changes and market fluctuations.
These determinations, in conjunction with continuous learning and adaptation, lead to a better understanding of the relationships between the firm and its environment and risk factors. As the industry, social and political conditions, technology, and other factors change, so do the firm and possible loss scenarios.
Our approach ensures that organizations not only survive unexpected challenges but emerge stronger and more resilient, with systems and processes that provide both anticipated and serendipitous protection against a wide range of potential threats.
Ready to Strengthen Your Risk Management?
Let our experts help you build comprehensive loss forecasting strategies that protect your organization against both anticipated and unexpected challenges.