Monday, January 31, 2011

Risk, Risk Everywhere

Rick Nason, PhD, CFA

Partner, RSD Solutions Inc

www.rsdsolutions.com

info@rsdsolutions.com

 

I teach an Executive MBA course in Enterprise Risk Management.  It is a lot of fun to teach as the students are experienced bankers and thus are very keen and very capable of pushing me as a professor.  Their professional experiences and their willingness to bring them up in class so they can directly apply the learning to their job makes it an exciting, challenging and intriguing class to teach.

Last week I had the students start a discussion on what objectives they had for the class.  One of the students brought up that she would like to learn how to define risk in a corporate context.  The reason for her comment was that the risk department at her institution was quickly becoming the department of everything (I am paraphrasing).

Those of you who have followed my blogs over the last two years know that this is a topic that I have written about a couple of times before.  What is risk, and what is the function of the risk department.  It is very easy for everything to become a task for the risk department to deal with.  Perhaps that is a good thing, and perhaps it is not.  In most institutions it means that the CRO quickly gets swamped due to a lack of resources.

Ultimately it comes back down to focus.  What is it that you want the risk department to do?  In many firms the risk department is a risk-washing department (the risk equivalent of green-washing).  In other organizations the risk department would not exist if the board and / or regulators insisted on it.  In other companies, the risk department plays a vital and valuable role in the day-to-day operations of the firm.

Defining what risk is, and the role and objectives of the CRO and the risk department is the key for achieving a successful, vital, effective and efficient risk department.    Has your organization taken the time to do so?

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