here be dragons

Posted: July 8, 2021

Here be dragons. This phrase was often used by sailors to warn others of the dangers that lay ahead. They would put this phrase on maps to let other sailors know that they were entering uncharted territory, where there were many unknown risks. The same could be said for businesses that try to control their extreme risk. While it is certainly a good idea to take measures to minimize risk, it should come with a similar warning: here be dragons. Controlling extreme risk can be a dangerous game, and should not be taken lightly.

So what does it mean to "control" extreme risk? In business, this can take many forms, from insurance to hedging to diversification. It is important for businesses to understand the different types of risk control available to them, and how each one works. Different types of risk control will work better in different situations, so it is important to tailor the approach to the specific risks faced by the business. Taking a one-size-fits-all approach is usually not effective, and can often do more harm than good.