Often I hear the term TCOR, Total Cost of Risk Management in the context of placing large insurance programmes in the market. It seems to be a “buzz word” used often in connection with insurance costs.


Total Cost of Risk Management consists of two distinct categories. Cost of Risk Management (CORM) and Cost of Failure (COF).


CORM has always been in the domain of conventional risk management and this encompasses insurances, business continuity, internal policy and procedures. It is well documented and relatively easy for a business to cost.


Cost of Failure is the opposite. It is difficult to consider, think strategically about and very difficult to fully cost. So to leave it out of TCOR thinking is easy but not intelligent and can have severe ramifications to business.


TCOR is all about understanding the value of preventing unrewarded risk. From a preservation of existing assets point of view that is fine but how does that apply to strategic risk? No one has a crystal ball. CORM can be projected out to be able to give some certainty but what about COF?


COF is the unacceptable difference between actual and unexpected performance. This can be due to product failure, acquisition failure, market entry failure and the loss of opportunity resulting from these. This is by no means an exhaustive list.


One of the more modern “risk” considerations is cyber and disruption which can have a large impact on COF. When strategy is planned it requires significant questioning. What processes can be replaced by software and how likely is that? How will this impact on the “shelf life” of this strategy? Will the business be trapped in a stagnant and declining market caused by disruption?


As can be seen, COF is a unknown factor and is often hidden in TCOR considerations. CORM as in insurance, review, monitoring and control thinking is “easier”. To be risk intelligent (a combination of CORM and COF) requires a shift in business culture. It is not a clip on function. It has to be in an open environment across all lines within the business.


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