by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
Simply put robustness is how much of a hit, or abnormality a system can take until it breaks down. Risk management of course is used to ensure that a company’s operation remain robust. Various risk measures are taken to calculate the potential exposure, and risk mitigants are utilized to ensure that the company’s operations remain sound and profitable. All good, simple common sense.
Flipping the concept around – does it make sense to ask how robust is your risk system? In other words, how much of a change from normal assumptions or conditions can your risk measurements take before your models and metrics breakdown? Instead of constantly performing risk checks on the company operations, perhaps the company should periodically perform a risk check on its risk system. A risk system cannot keep a company robust if the risk system itself is not robust!
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