Risk Velocity

Someone asked about ‘risk velocity’ in the Linkedin discussion groups.  She was asking about its use as a criteria in prioritising risks. But she was also interested about the term itself. Why ‘velocity’?  What did the (so far anonymous) coiners of the term have in mind?  The original poster notes that definitions of the term were very vague. 

Subsequent comments from the other posters bear this out – it seems everyone had their own thoughts about what risk velocity meant.  I myself had none, having not heard of this term before.

One poster suggested that risk velocity is about the ‘timeframe within which the risk event might occur’.  That is, ‘risk proximity’ (which begs the question – what’s the difference between the two?).

Another poster posited that risk velocity is not the proximity of the risk itself, but the time to impact of its consequences.  That is, how much time do we have before the consequences happen after the risk occurs?  This poster rather correctly points out that the common measure of risk, which is “probability x impact”, tells us nothing about when either the risk or its impact might occur.

A third poster comments that he sometimes uses ‘Velocity of Risk’ to describe the state of the financial market.  Presumably, during a volatile situation, the velocity is higher.  This is somewhat akin to wind velocity, blowing more violently in a hurricane, and much more calmly in normal weather.

A commenter named Val brings forward her own use of the term. If I understand her correctly, she uses risk velocity to describe how the risk grows the longer it takes to mitigate its occurrence.  Her example tells me she is talking about the impact growing the longer we wait to mitigate. 

Someone named Peter chimes in, properly noting that ‘velocity’ is a vector – a measure containing both magnitude and direction.  He posits that perhaps the term includes (or should include) the idea of something that is moving in a certain direction. Perhaps we are running directly into the risk (or the risk is bearing directly towards us), perhaps it might be a glancing blow, perhaps it may bypass us.

Yet another poster writes that her use of risk velocity is about assessing the likelihood of an event in a specific timeframe, that is, assessing that an event has a 50% chance of happening in the next 3 months, is much more useful than merely saying it has a 50% chance of happening.   While certainly sound, I just don’t see that this has any connection at all about velocity.

In a later post the original poster reveals her own understanding,  which is that risk velocity was about the rate of change of the likelihood, and not at all about the impact.

There were dozens of other further comments, too many to note here.  Some went beyond the original question, but providing interesting insights.

But what of it?  What about risk velocity?  Can it be used to rank risks?  I think the idea of getting a  good understanding of when a risk might occur (risk proximity) and how soon the impact will happen after the risk event occurs is sound, but very inadequate. 

First, which impact are we talking about?  The initial impact?  The follow-on impacts?  The maximum impact?  You need a good understanding of the impacts, when they will occur, how they will occur, in which order, and so on.  Some impacts will occur immediately, some will occur later.  How can a single risk velocity number capture these characteristics?

Risk velocity, as a singular number to be used for ranking risk events according to when their impact is to occur after the event, might appear to be simple and useful.  I think it has a use as a label to allow us to find those risks which may have a early impact, but as a prioritising value, I find it to be too ambiguous and potentially misdirecting.