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The paper discusses how to transform risks into deal opportunities
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Alfredo C. Saad works in the Audit, Compliance and Risk Management department of IBM, with 43 years of experience in information technology. He graduated in Electronics Engineering and holds a Master of Sciences degree in Electrical Engineering. He became member of TLC-BR in 2013. The Mini Paper Series is a biweekly publication of the TLC-BR and sign electronically and receive future editions, please send an email to tlcbr@br.ibm.com. The TLC-BR is the representation of IBM Academy of Technology in Brazil.
Mini Paper Series Year 8
October, 2013 - NO 195
Transforming Risks Into Deal Opportunities
Alfredo C. Saad
The concept of risk has emerged in the transition from
the Middle Ages to the Modern Ages, throughout the
sixteenth and seventeenth centuries. Until then, despite
the remarkable progress already achieved in other human
knowledge fields, no one dared to challenge the counsel
of the gods, who seemed to determine future events. This
fact meant that the observed events were simply
associated with good or bad luck. An entrenched
fatalistic view prevented people to even imagine the
possibility of actions that would increase the likelihood
of favorable events or decrease the likelihood of adverse
events.
The innovative air brought by the Renaissance made the
thinkers challenge this fear of the future, leading them to
develop and refine quantitative methods that anticipated
several future scenarios in opposition to the unique
scenario imposed by destiny. One of the first milestones
was the solution proposed by Pascal and Fermat in 1654,
about the enigma of betting division in gambling. That’s
when the Probability Theory foundations, key to the
concept of risk, appeared.
Thereafter, the newly created perspective made it
possible, during the eighteenth century, numerous
applications in different areas, such as the population life
expectancy calculations and the improvement of
insurance calculation for sea travel .
The constant development of quantitative methods
brought, already in the Contemporary Age, these
applications to the corporate world. Texts written by
Knight in 1921 (Risk, Uncertainty and Profit) and
Kolmogorov in 1933 (Fundamentals of Probability
Theory), as well as the Game Theory, developed by von
Neumann in 1926 are the basis for the modern evolution
of the theme. Among the areas addressed since then,
may be cited the decisions relating to mergers and
acquisitions, investment decisions and macro-economic
studies.
The evolution of the discipline of risk management
allowed us to identify four different ways to react to a
risk, namely: accept, transfer, mitigate or avoid the risk.
There is, however, a fifth, innovative way, to react: to
transform the risk into a deal opportunity.
An example of application of this concept can be seen in
contracts of IT outsourcing services. Typically, the
client hires the service provider to operate the IT
environment of its organization with quality levels pre-
defined in the contract, which ensures that any failures
will not significantly impact the customer's business.
In this scenario, a relevant part of the service provider's
activity is the continuous effort to identify and address
vulnerabilities in the operated IT environment and that
could affect the client activities.
It is well known that cultivating the customer perception
that the provider acts proactively towards the
identification of potential risk factors to its business will
significantly increase their willingness to hire new
services.
Moreover, the recommended treatment for identified
vulnerabilities often requires taking actions that are
outside the scope of contracted services.
This scenario features the fifth way to react to an
identified risk: the generation of a new deal opportunity
by expanding the scope of the contracted services, with
the purpose of eliminating or at least mitigating factors
that put the customer's business at risk.
The ongoing exercise of such proactive attitude of the
provider consolidates, in the customer perception, the
idea that the provider is able to add a significant value,
by ensuring that their own business is protected by an
effective IT risk management . This value largely
surpasses the strict commercial limits of the signed
contract, creating a mutual trust link, valuable to both
parties and that can generate partnership actions in areas
not previously explored or foreseen.
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