by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
I was teaching a course in the Bahamas recently when the power went out. It does not happen that often, but it happens. In fact the power is more likely to go out when I am at home in Halifax – thanks you Mr. Winter Storm.
The issue with the power is that I was giving a lecture on model building in Excel. How do you teach computer model building if there is no power for your computer (and the battery is dead in your laptop and the overhead projector will not project)? And yes, for those of you who are curious, we had already covered the theory.
It got me to thinking – how well would your risk management system work without computers? How well would you be able to model your risk exposures? More importantly, how would you understand the trends in your risk exposure?
Now to go to the next level of questions, how well do the people in your organization understand the risk model data that your system currently spits out? Do they know it well enough to “game it”? Do they know it well enough to know where its weak points are? Do they know it well enough to know when it will provide non-intuitive or incorrect results? Do people in your organization still have intuition about risk exposures – or is it all computer driven?
I fully understand that your organization likely has redundant systems, and so an isolated computer glitch will not change things. But why not also have redundant people systems – that is people who can back up the computer if the computer is down or producing irrational results? Why simply not have the best computer of all working for your risk department – the human brain?
By the way – our class went on quite well even without power. Amazing thing the human brain. No power cord!
No comments:
Post a Comment