*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
If you are of a certain age you likely have a will. Financial institutions
in many countries now also have a version of a will; a living will.
Assuming you are relatively healthy, both mentally and physically, then I
suspect you have no idea of how you are going to die. Likewise, a financial
institution, assuming it is relatively healthy and sound also has no idea how
it will cease to exist. If you knew how you were going to die, you would
undertake actions to mitigate the chances of dying. Likewise, even the most
ineptly run financial institution will manage itself to decrease the probably
of going out of business.
How a person dies is either natural or through some type of unforeseeable
accident. It is the same for financial institutions (or any other type of
business organization for that matter); they die naturally through the normal
course of business, or they go out of business through a set of unforeseeable
circumstances.
Having a will does not change your chance of dying. A financial institution
having a will does not change its probability of failing. A will is a tool
for after you die, not before. Let's stop pretending otherwise.
There is one major difference between a (living) will for an individual and a
living will for a financial institution. A (living) will for both a person
and for a financial institution is intended to create an orderly windup. In
the case of a person, a (living) will is of great service to the family
members and the executor of an estate. However I am highly confident that
whatever series of events that occur that cause a major financial institution
to fail, it will almost certainly make the living will of that institution a
farcical useless artifact.
[1] https://twitter.com/rsdsolutions
Monday, March 10, 2014
Thursday, March 6, 2014
Laplace
*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
Pierre Simon Laplace was a physicist, astronomer, mathematician and as we
will discuss a philosopher who lived from 1749 – 1827. Many readers of
this blog will of course know of Laplace through their study of Laplace
transforms in university.
For the general public, Laplace is probably better known for his thought
(which I am paraphrasing) that, if he knew the position and momentum of every
particular on earth, and if he had enough calculating power, then he would be
able to completely determine the future of the world.
That is a very profound statement, and it brings up all sorts of questions
about free-will and in part is responsible for Einstein's famous comment
that (again paraphrasing) "God does not place dice".
I believe that philosophy is best left to discussions in bars while you are
waiting for the game to start. However as you start your day, the thought
of Laplace's does give you pause. My point for this blog – a blog
supposedly about risk management – is does Laplace's comment give us
pause in risk? In other words, aren't many of us implicitly going around
trying to manage risk so as to be able to completely determine the future
outcomes of the organization (or at least the downside outcomes)? Are not
the regulators also implicitly making the same assumptions (having the dream
of a predetermined and thus risk free world) with the imposition of each new
regulation? Don't most risk managers dream of a world like Nirvana where
every risk can be pre-determined and controlled?
Perhaps it is time we explicitly checked what we think about Laplace's
conjecture a bit more before we set our risk management goals.
[1] https://twitter.com/rsdsolutions
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
Pierre Simon Laplace was a physicist, astronomer, mathematician and as we
will discuss a philosopher who lived from 1749 – 1827. Many readers of
this blog will of course know of Laplace through their study of Laplace
transforms in university.
For the general public, Laplace is probably better known for his thought
(which I am paraphrasing) that, if he knew the position and momentum of every
particular on earth, and if he had enough calculating power, then he would be
able to completely determine the future of the world.
That is a very profound statement, and it brings up all sorts of questions
about free-will and in part is responsible for Einstein's famous comment
that (again paraphrasing) "God does not place dice".
I believe that philosophy is best left to discussions in bars while you are
waiting for the game to start. However as you start your day, the thought
of Laplace's does give you pause. My point for this blog – a blog
supposedly about risk management – is does Laplace's comment give us
pause in risk? In other words, aren't many of us implicitly going around
trying to manage risk so as to be able to completely determine the future
outcomes of the organization (or at least the downside outcomes)? Are not
the regulators also implicitly making the same assumptions (having the dream
of a predetermined and thus risk free world) with the imposition of each new
regulation? Don't most risk managers dream of a world like Nirvana where
every risk can be pre-determined and controlled?
Perhaps it is time we explicitly checked what we think about Laplace's
conjecture a bit more before we set our risk management goals.
[1] https://twitter.com/rsdsolutions
Wednesday, March 5, 2014
Questions
*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
I had dinner last week with a relatively new alumnus from the MBA program
that I teach in. Meeting with alumni is such a wonderful thrill. The
former students are always quick to tell me what they learned from me and the
other professors, and most valuable for me (from a self-learning perspective)
is to hear from them what they did not learn but wish they had learned.
This young fellow is particularly bright, but also speaks his mind – which
makes him very refreshing in this age of political correctness. The comment
he made to me that has occupied my mind since the meeting is: "whenever I
went to you with a question, you always responded by giving me more
questions. You never gave me an answer, but through some strange process I
always seemed to have a better idea of what to do after to seeing you. But
it was so frustrating!"
I never really thought about things in quite the way that the student put it,
but after staring at the hotel ceiling for the entire night thinking through
what he said I came to the conclusion of: "so what?! The issues got
resolved."
As I thought about it further though, a better way of assessing the situation
came to me. As I said, this alumnus is a particularly bright young man.
Whenever he had a question it was always a high caliber question, full of
complexity. (The simple questions he had the intellect and ambition to
solve himself.) I realized that "high caliber, complex questions", do
not have simple answers. You cannot answer them in a definitive manner.
The best you can do to solve them - to get ideas about how to manage these
problems – is to try to develop some concepts. And the best way to
develop complex concepts is to ask some complex questions that probe around
the initial problem or question.
We have become too accustomed to looking for answers on Google, or from a
consultant or expert. If the original question is a really good "high
caliber, complex question", then perhaps the best answer is a set of more
thought provoking, concept developing questions! It might be "so
frustrating" to work this way, but it is the only way I know of how to deal
with really great problems and issues.
[1] https://twitter.com/rsdsolutions
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
I had dinner last week with a relatively new alumnus from the MBA program
that I teach in. Meeting with alumni is such a wonderful thrill. The
former students are always quick to tell me what they learned from me and the
other professors, and most valuable for me (from a self-learning perspective)
is to hear from them what they did not learn but wish they had learned.
This young fellow is particularly bright, but also speaks his mind – which
makes him very refreshing in this age of political correctness. The comment
he made to me that has occupied my mind since the meeting is: "whenever I
went to you with a question, you always responded by giving me more
questions. You never gave me an answer, but through some strange process I
always seemed to have a better idea of what to do after to seeing you. But
it was so frustrating!"
I never really thought about things in quite the way that the student put it,
but after staring at the hotel ceiling for the entire night thinking through
what he said I came to the conclusion of: "so what?! The issues got
resolved."
As I thought about it further though, a better way of assessing the situation
came to me. As I said, this alumnus is a particularly bright young man.
Whenever he had a question it was always a high caliber question, full of
complexity. (The simple questions he had the intellect and ambition to
solve himself.) I realized that "high caliber, complex questions", do
not have simple answers. You cannot answer them in a definitive manner.
The best you can do to solve them - to get ideas about how to manage these
problems – is to try to develop some concepts. And the best way to
develop complex concepts is to ask some complex questions that probe around
the initial problem or question.
We have become too accustomed to looking for answers on Google, or from a
consultant or expert. If the original question is a really good "high
caliber, complex question", then perhaps the best answer is a set of more
thought provoking, concept developing questions! It might be "so
frustrating" to work this way, but it is the only way I know of how to deal
with really great problems and issues.
[1] https://twitter.com/rsdsolutions
Monday, March 3, 2014
People Risk
*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
Name a risk to a corporation that ultimately does not involve people.
I'll wait.
In the business world, virtually all risk is ultimately people risk. Now
think about what proportion of your risk management system is about managing
people risk. Is there a mismatch?
[1] https://twitter.com/rsdsolutions
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
Name a risk to a corporation that ultimately does not involve people.
I'll wait.
In the business world, virtually all risk is ultimately people risk. Now
think about what proportion of your risk management system is about managing
people risk. Is there a mismatch?
[1] https://twitter.com/rsdsolutions
Thursday, February 27, 2014
Quantifiable Risk
*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
Risk can be quantifiable or unquantifiable. In other words, there are risks
that we can more or less objectively measure and there are risks that we can
only guess at their likelihoods and impacts.
I would argue that the vast majority of the important risks of an
organization (the risks that have a big impact both positively and
negatively) are unquantifiable. Yet it is obvious that we spend the most
time measuring and managing the quantifiable risks.
Legendary management consultant Peter Drucker stated that "what gets
measured, gets managed". I don't think he meant that statement to mean
"what gets measured should get managed".
[1] https://twitter.com/rsdsolutions
Partner, RSD Solutions Inc/*
*/Follow us on Twitter/* [1]
Risk can be quantifiable or unquantifiable. In other words, there are risks
that we can more or less objectively measure and there are risks that we can
only guess at their likelihoods and impacts.
I would argue that the vast majority of the important risks of an
organization (the risks that have a big impact both positively and
negatively) are unquantifiable. Yet it is obvious that we spend the most
time measuring and managing the quantifiable risks.
Legendary management consultant Peter Drucker stated that "what gets
measured, gets managed". I don't think he meant that statement to mean
"what gets measured should get managed".
[1] https://twitter.com/rsdsolutions
Wednesday, February 12, 2014
How to be a Complete and Utter Failure as a Risk Manager
*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*
*/Follow us on Twitter/* [1]
Want to know how to be a complete and utter failure as a risk manager?
Here's a start:
1) Trust all numbers unconditionally and take them all at face value
2) Ignore wisdom, experience and critical thinking
3) Never ask questions
4) Don't bother to build a team of experts. Become an expert in each
area yourself
5) Ignore small probability events
6) Financial markets are irrelevant and / or frequently wrong and thus you
do not need to watch them
7) Realize that history is irrelevant. Likewise, realize that all history
is totally relevant.
(With apologies to Steve McDermott.
http://www.amazon.com/Complete-Utter-Failure-Life-Everything-ebook/dp/B004MMEIZK/ref=sr_1_1?ie=UTF8&qid=1391716427&sr=8-1&keywords=how+to+be+a+complete+and+utter+failure+in+life
[2] )
[1] https://twitter.com/rsdsolutions
[2]
http://www.amazon.com/Complete-Utter-Failure-Life-Everything-ebook/dp/B004MMEIZK/ref=sr_1_1?ie=UTF8&qid=1391716427&sr=8-1&keywords=how+to+be+a+complete+and+utter+failure+in+life
Partner, RSD Solutions Inc./*
*/Follow us on Twitter/* [1]
Want to know how to be a complete and utter failure as a risk manager?
Here's a start:
1) Trust all numbers unconditionally and take them all at face value
2) Ignore wisdom, experience and critical thinking
3) Never ask questions
4) Don't bother to build a team of experts. Become an expert in each
area yourself
5) Ignore small probability events
6) Financial markets are irrelevant and / or frequently wrong and thus you
do not need to watch them
7) Realize that history is irrelevant. Likewise, realize that all history
is totally relevant.
(With apologies to Steve McDermott.
http://www.amazon.com/Complete-Utter-Failure-Life-Everything-ebook/dp/B004MMEIZK/ref=sr_1_1?ie=UTF8&qid=1391716427&sr=8-1&keywords=how+to+be+a+complete+and+utter+failure+in+life
[2] )
[1] https://twitter.com/rsdsolutions
[2]
http://www.amazon.com/Complete-Utter-Failure-Life-Everything-ebook/dp/B004MMEIZK/ref=sr_1_1?ie=UTF8&qid=1391716427&sr=8-1&keywords=how+to+be+a+complete+and+utter+failure+in+life
Monday, February 10, 2014
Retirement
*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc./*
*/Follow us on Twitter/* [1]
A relatively recent article in The Guardian / The Observer (January 12,
2014), discussed the organization Edge.org, or also known as the Reality
Club. Each year it provides a forum for leading thinkers to respond to a
given question. The question for this year was "What Scientific Idea is
Ready for Retirement?"
What a great question. It is also a great question for risk management.
Although the field of risk management as a discipline is still relatively
young (actually an infant depending on how far back you want to trace the
roots of it) there are several ideas I can think of that might be ready for
Shady Acres Retirement Home!
I would like to hear your ideas to this.
[1] https://twitter.com/rsdsolutions
Partner, RSD Solutions Inc./*
*/Follow us on Twitter/* [1]
A relatively recent article in The Guardian / The Observer (January 12,
2014), discussed the organization Edge.org, or also known as the Reality
Club. Each year it provides a forum for leading thinkers to respond to a
given question. The question for this year was "What Scientific Idea is
Ready for Retirement?"
What a great question. It is also a great question for risk management.
Although the field of risk management as a discipline is still relatively
young (actually an infant depending on how far back you want to trace the
roots of it) there are several ideas I can think of that might be ready for
Shady Acres Retirement Home!
I would like to hear your ideas to this.
[1] https://twitter.com/rsdsolutions
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