Risk Management - 101
Mar 25th, 2008 by Kevin
When you invest in offshore real estate, people always talk about how risky it is, but what does that really mean? What are the different types of risks? What actions can you reduce or avoid risk?
First, a definition of the term Risk:
An uncertain event or condition that, if occurs has a positive or negative effect on an objective. The key thing to note here is that not all Risk is bad!
Risk management is a process of identifying, analyzing, and responding to risks. It includes maximizing the probability and consequences of positive events and minimizing the probability and consequences of adverse events to investment objectives.
Risk characteristics:
- A definable Event
- Probability of occurrence
- Impact (consequence) of occurrence
Risk Exposure is a function of its characteristics.
Risk Exposure = (probability of occurrence) * (impact of occurrence)
Risks can be grouped into 3 broad categories
Unknown-Unknowns
- Don’t know what the risk is
- Don’t know the impacts
Known-Unknowns
- Know what the risk is
- Don’t know the impacts
Known-Known’s
- Know what the risk is
- Known the impacts
Unknown Risk is not easy to deal with. By its definition, it includes risks that we typically cannot anticipate or plan for. The idea is that you want to move as many risks into the known-known category as possible. Once a risk is known, you can take some action on the risk.
Coastal Dreams Worldwide is in the business of risk management for our clients. First, we help educate people on the risks of offshore investments. Second we focus on identifying risk so that an investor doesn’t have to, and take actions so that the risk can be mitigated or avoided, OR in the case where the risk is an actual opportunity, we will take the appropriate action to enhance, pursue or ignore based on the best interest of our clients. Third, we are creating an investor community so that people with varying degrees of risk tolerance still have options.
Most importantly, we are also investors ourselves. We aren’t just in the business of dolling out advice. We have skin in the game as well. We strive to finding creative solutions that support the wealth building objectives of a like minded community.
