If art imitates life; call your risk team. JR is back.

by Michael Arbow MBA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com 

 

Last week it was announced that Larry Hagman had agreed to return to Southforks Ranch and reprise his role of JR Ewing. Back in 1979, I was an economic student at the University of Western Ontario, who with my Ivey Business School friends would gather on Friday night before attending any party or social activity to watch the TV soap opera Dallas and cheer for the exploits of JR. During the first 5 years of the show the price of oil reached historic high levels (inflation adjusted) and was 63% higher on average than the previous 5 years, interest rates spiked in Canada up towards 20% and food prices reached historic levels. And now we hear that JR is coming back, ranch and all. 

How interesting that as JR makes his comeback, Brent crude is at triple digits, interest rates are rising (slowly at the moment), inflation is being forecasted and commodity prices are on a tear. JR will surely be having a déjà vu experience, feel right at home and be glad it is not a dream. I wonder if those at Western studying economics and business will be cheering him on this time.  As for your risk team – it might be time to get netflix for their office. 

For more on the Dallas’s rebirth follow the link:

http://tinyurl.com/5wl2x2a

 

Risk Test. Part 2

Rick Nason, PhD, CFA

Partner, RSD Solutions Inc

www.rsdsolutions.com

info@rsdsolutions.com

In a previous blog (Risk Test http://tinyurl.com/4fwypha) I talked about setting up a risk test for your risk function.  I asked what type of questions would be on that test and how you would determine what a passing score would be.

Obviously very few companies will set up a test for their risk function (much less any other part of the organization).  However there is a disturbing fact that would come out if they did.  That disturbing fact is that most of the tests would likely be full of definitions.  In other words the questions would go like “Define how this organization standardizes risk tolerance”, or “What is the company’s risk philosophy?”, etc. etc.

I suspect that a company’s risk test would have very few concepts or very little in the way of testing whether or not risk people actually understood risk, and most of it would be on corporate policies and definitions.  Inefficient, ineffective and sad I think.

Snap the Fingers on Risk. Part 2 of 3

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc

www.rsdsolutions.com

info@rsdsolutions.com

 

In a previous blog I talked about the snap the fingers exercise where you assume I have magical powers and upon snapping my fingers you get to switch your risk department with the risk department of any other company.  The challenge was to figure out who you would choose.  (The link to the original blog is here: http://tinyurl.com/5wy7wz9) 

The second step of the process is to drill down as to why you made the specific choice that you did.  In fact you need to drill down to at least 5 “why” levels to get to the core.  Going back to the original job of advising MBA students on their careers, once the student has answered the snap the fingers answer, you ask “Why do you want to be that person?”  The response is usually “because they are rich and famous.”  The next question then is “Why do you want to be rich and famous?”  and so on and so on for at least 5 series of “Why?” questions. 

Let’s go back to your risk situation.  Why did you want to have your risk department become the risk department of the firm that you chose?  What are the characteristics that they possess, that you need to possess?  What are the 5 “Why?” questions you need to ask yourself?

High flying and erratic loonie. Part 2

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Risk Test

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc

www.rsdsolutions.com

info@rsdsolutions.com

 

Currently I am developing a test for one of the MBA courses that I am teaching.  Students always get anxious about tests – which of course is very understandable.  They always want to know – what is going to be on it.  Will it be hard?  Are the questions short answer, multiple choice or problem based?  Will there be essays? 

If you were to set an exam for your risk function, what would it look like?  If you wanted to test if your risk function was up to snuff, how would you do it?  What type and style of questions would you ask?  What questions would you ask?  What would qualify as a passing grade?  How would you distinguish between a high pass and a squeeze through the cracks mercy pass?  Who would mark the test – who should mark the test?  Who is qualified and unbiased enough to mark the test?  What would be the implications of failing?  What would be the implications of passing with flying colours?  

In Theory

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.rsdsolutions.com 

info@rsdsolutions.com

 

In theory, there is no difference between theory and practice.  But, in practice, there is.

                                                 Jan L.A. Van De Snepscheut

 

Does your risk department run on theory or practice?  Is your risk department developed based on sound academic principles, or is your risk department developed based on the collective wisdom of seasoned professionals?  Has your firm been able to successfully integrate and implement the two lines of thinking?  (Surely to goodness, you don’t believe that theory and practice are the same thing do you?)