Small Post - Asset Management and Risk
A few nights ago I was having dinner with a friend who was interested in building an asset management mobile application for the construction and municipal industry. I didn’t know too much about asset managment but using some context clues I figured it was related to tracking the conditions of pipes, concrete, materials etc… During our conversation we consistently brought up the topic of “Minimizing Risk”.
After about an hour of drinking and mentally prototyping what an app would look like. I got to thinking that I didn’t really know what he meant by “minimizing risk”. Risk a relative concept just like value and wholly depends on the perspective of the situation. Say we take a look at a water tank. There are many associated Risks that we can list:
- Propensity to Leaks
- Large Ruptures
- Stability during Earthquakes and Storms
- Possible pollutants and contaminants
We can actually keep continuing
- Loss of funding for maintenance
- Economic Risks during Downturns
It would seem that the last 3 might be stretching it for a general Asset Management app because these things are so wildly systemic. Unfortunately my friend continued into this territory of endlessly listing out risks into oblivion and that this hypothetical app should do as much as godly possible. He prided himself on being “Risk Averse” but I began to see that he was trading Risk Minimization for value. If I began to build such an app, it would be so convoluted, buggy, and erroneous in its presentation that it would provide little to no value at all at the expense of listing every minutae of different types of risk.
It is always important to understand Risk vs Reward and that minimizing risk does not at all promise value. The proper understanding is to focus on the trade off, not solely the value or the risk.