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Does anything about the preceding sentence sound odd to you? No? Well it should. According to the good and helpful people at my bank, using a credit card in New York City is a huge fraud indicator. So it is only logical that upon seeing a charge in New York City, they froze my account.

Yes, yes, I know what you are thinking: "Beaumont, you are a madman! How dare you use your credit card while traveling?"

I had a related conversation with my friend, Dr. Brian White of the Mitre Corporation, regarding risk management on automobiles.

While driving his car in a blizzard he became stuck in the snow. When he got out of the car to assess the situation, he closed the car door. This was a very bad decision it turns out because the anti-theft system was programmed to automatically lock the doors within 30 seconds.

Somewhere deep in the recesses of Ford Motor Co., some risk management-minded executive had decided that the risk of carjacking was so great that it could not be left up to the simpletons driving the vehicles to remember to lock the doors. So the decision was made to make sure that the doors would automatically lock.

I can assure you that Dr. White, standing outside of his still-running, locked car in a blizzard, was not comforted in the slightest by the assurance that he was safe from a carjacking. The only solace he might have gained was in the fact that the car was a rental and he did not have to put up with such idiocy for more than a day or two.

In both of these cases, the risk management efforts were such that they rendered the products completely useless. Even worse, in both cases they had the potential to leave the customer stranded and in a far more dangerous situation than they would have faced in the absence of any risk management efforts.

The true lesson here is that risk management that attempts to eliminate every risk, no matter how small or improbable, ends up causing more damage than no risk management at all.

BEAUMONT VANCE is the risk management columnist for Risk & Insurance®. He manages risk for a leading financial company. This column was a complimentary excerpt from one of his latest "Risk Management Reports" newsletters, which he edits and publishes. For more information on how to subscribe to the full version of the newsletter, please visit www.riskreports.com/

Click here to read the column that Beaumont writes for Risk & Insurance®.

April 3, 2008

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