Consider quantifying risks and their likelihood

David Krasnostein, the General Counsel of Australia’s National Australia Bank, discussed risk management and the role of lawyers in helping to make risk-reward decisions. He said that his in-house lawyers “aim to break risks and rewards into units that can be measured so that when a risk is taken, it is known that the rewards outweigh the risks.” Wow!

Proponent though I am of quantification, I snicker at this claim. Defining legal risks is hard; breaking them into units, harder, and measuring those “legal risk units” harder still. The aim of his lawyers will surely miss, although a watered down version – try to prioritize risks and give some order of their magnitude and likelihood – could hit the clients’ targets. (See my posts of March 27, 2005 on the elusiveness of risk management and Aug. 14, 2005 on the vagueness of the term.)

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