by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
I have noticed with interest the rise in popularity of luxury watches. The exorbitant prices (sometimes into six figures) charged for these watches are justified in large part by their ”complications”. The thinking goes that the more “complicated” a watch is in its manufacture, the more that collectors are willing to pay. On one level this makes a lot of sense. A more complicated watch should in theory perform better, and the craftsman who took the extra time and effort to create the complicated watch should be compensated for their skill and their efforts.
Paying a $100,000 or more for a watch however begs the question of what exactly a watch is supposed to do. A watch of course is supposed to tell time. Does a $100,000 watch tell time better than a $50 Timex (a watch that “takes a licking and keeps on ticking”)? The answer of course is no – a Timex tells time just as accurately and with much less required maintenance than a “complicated” watch costing more than a 1,000 times more.
Now I do not intend to start blogging on horology, so you may be wondering what this has to do with risk management. Simple. The more firms that I work with, the more I have come to realize that firms are putting their faith into having a “complicated” risk management system, rather than a simple one that works. In other words, companies believe a “complicated” timepiece will help them tell time better than a “Timex”. “Complicated” does not mean better. Functional is better. Is your risk management emphasis on functional or complicated?
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