The Advantages of Using Blockchain Technology for Distributed Risk Management Processes
Risk Management is an important business process that can be used to evaluate the project weaknesses and find the growth vector.
A project owner can use the resources of stakeholders (employees and knowledgeable investors) and external experts to evaluate project risks. One of the most common models is the probability-impact approach: risks are located on the chart according to their probability (how likely is it that the risk situation will occur?) and impact (how significant will its effects be?) values.
This approach is used in RiskRide, a new decentralized application built on the blockchain by Marc Jansen:
Why is this chart useful? The Project Owner can make informed project decisions more reliably using this chart, based on the experts’ and stakeholders’ contributions. The idea of the chart is to sort risks: the ones that need the greatest attention are found in the upper right area (high probability, high impact), while less important risks (low impact / low probability) are closer to the origin. Therefore, project managers can easily decide the risks for which they need to formulate mitigation strategies. For example, on this chart, we can see that the Marketing issue is not as critical as a major bug — but that it is much more likely. Should this lead the Project Owner to pay more attention to marketing activities?
In this article, I will describe how blockchain can make Risk Management software more secure and efficient.
Which problems can be solved by blockchain in Risk Management processes?
Managerial opportunism
Some cases of managerial opportunism can be solved by storing the full process of decision-making on the blockchain. This helps build trust between a project’s employees.
Example:
1) An expert, Bob, adds a risk to the risk management system
2) Engineer Alice realizes she can use this risk to gain individual profit for herself
3) Alice removes this risk proposal from the database and makes her profit, reducing the company’s revenues
This case can be solved by storing risks on the blockchain: risks cannot be removed from decentralized data storage and cannot be exploited in the individual interests of employees.
Expert ranking transparency
Storing each step of the decision-making process on the blockchain guarantees that experts’ contributions can be transparently measured.
Example:
1) An expert, Bob, adds a risk to the risk management system
2) Manager Alice understands the importance of this risk and decides to claim that she proposed it herself
3) Alice asks database engineer Cooper to change the risk proposer in the storage
Storing a full risk evaluating process on the blockchain would guarantee that Bob’s contribution won’t be underrated.
Participant number growth
Following the idea of the “Wisdom of the Crowd”, which states that decisions taken by a large number of people can be better than decisions taken by single experts, scalability is extremely important for risk management software. The blockchain’s serverless project infrastructure makes it simpler to scale the number of users. As RiskRide owner Marc Jansen explains:
“The major idea of the tool is that a potentially unlimited number of users can participate in the process, bringing their expertise and their perspectives to important issues.”
Of course, this could also be achieved without a blockchain-based approach, but from a software architecture point of view, it makes a lot of sense: the whole middleware (server and database) that would otherwise be necessary can be implemented in a smart contract and be deployed to the blockchain. Therefore the hardware/infrastructure element is far smaller and more lightweight.
The potentially unlimited amount of users achieved by a decentralized approach is another important reason to move the Risk Management process to a blockchain.
Learn More About Risk Management!
If you are interested in the details of the Risk Management process, learn how to use the new RiskRide dApp in this tutorial by Marc Jansen: https://medium.com/@marc.jansen76/riskride-tutorial-21d623e9628e
If you are a team or project owner interested in Risk Management, feel free to use RiskRide at http://riskride.wavesbi.com/ to evaluate your project’s risks ✨
Conclusion
Imagine a global ecosystem that affects thousands of lives, with a group of experts evaluating its risks. How important is complete transparency in their actions?
Thanks go to Marc Jansen for assistance in preparing this article and creating the blockchain-based application for Risk Management on Waves: RiskRide.
