Risk Management : 10 things you must consider for your risk program

I wrote the following post on my consulting site.  Given all the chatter about risk management, I thought I’d share here too.

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Risk Management is the top priority for many financial services companies.  The reasons are obvious.  What’s not obvious is what they should do about it.  Our research has revealed that most companies are focused on standard best practices including: scenario analysis, MPT based analysis, Risk Adjusted Returns, VAR etc.  Too many of them assume that this will protect from future adverse events.

Unfortunately, recent history suggests that this is a very poor assumption.  Below are 10 things that your team should consider as they embark on a new Risk Management program.

1. Many firms that went under, are in trouble, or suffered massive loses were using sound risk management practices.

2. There is no way to reliably predict events like those in recent history.

3. The efficacy of most risk models are truly tested only after some bad event.  Often times, they are not affirmed.  Don’t assume that because you haven’t been hit, that your models, processes and practices are working.

4. Invest in different approaches.  Simply consider what you had intended to do and focus on discovering alternatives.

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