Data

By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.

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Colin Powell – “Experts often possess more data than judgment.” 

Our current management world is data driven.  The era of big data is here and it will continue to get even bigger (no pun intended).  However, have you stopped to think about what exactly data is?  In essence, data is history.  Data is numerical recordings of what happened.  In many cases what happened is relevant for what will be – history tends to repeat itself.  I would argue however that for the most valuable cases, that is cases in which humans need to make a decision, what happened is not relevant for what might be.  Paradigm shifts – for example – give no respect whatsoever to history.

As a risk manager in the era of the religion of data, your role is to decide for what risks is the future a continuation of the past, and for what risks is the future yet to be designed.  It is not a trivial task, and it is a task that cannot be done with data.

Fears

By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.

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It was Franklin D. Roosevelt who famously said that we “… have nothing to fear but fear itself”.  The same might be paraphrased today as “we have nothing to fear but the regulation of fear itself”.

Fear is a powerful motivating tool, and likely fear is used as a sneaky political trick in many organizations to justify expansions of processes designed in part to mitigate risk and the risk of fear.

One factor that is often ignored is that many people seem to actually like to live in a state of fear.  As a trivial example consider all of the successful horror movies, or the attraction of ever more stomach churning roller coasters.  In the corporate world fear is also attractive to the psyche of many people as it allows them to justify their existence.  If the sky is perpetually falling, then they must be perpetually in place to keep it up.

Ultimately though making decisions out of fear is generally suboptimal.  Furthermore, fear is not risk and neither is risk equivalent to fear. 

There is a critical difference between being fearful of risk, and being respectful of risk.  Professional risk managers embrace and manage risk; amateurs fear risk.

Brexit

By Stephen McPhie, CA
Partner, RSD Solutions Inc.

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We’ve been overdosing on elections and referenda in the UK recently.  In 2014 there was the Scottish independence referendum, 2015 saw the UK parliamentary elections, the Scottish election took place last month and next month comes the EU referendum (the Brexit vote).

Recent results in Scotland turned historic voting patterns upside down, a sign of voters’ discontent with the established order; echoes perhaps of the mood in the current U.S. presidential election campaign.  Canada saw unexpected results in recent Federal and Alberta elections.

The quality of the Brexit debate has been extremely high and informative [Ed.: insert own words here], as illustrated by David Cameron on the remain side suggesting a vote to leave could bring on war across Europe and Boris Johnson for the leave campaign likening the behaviour of the European Union to that of Hitler.

In spite of a no result in the Scottish independence referendum, the issue is kept very much alive with arguments similar to those that dominated Quebec for so many years.  Even in the event of a vote to remain in the EU, this is likely also to be the case with that issue.

Opinion polls, for what they are worth, for the Brexit vote had both sides very close, but have been moving recently towards a vote to remain.  So what happens if we wake up on June 24 to find that the UK voted leave?  My expectation would be for Sterling to fall significantly followed by a period of significant volatility.  Such volatility is likely before the vote as well if polls are close.  Businesses appear to have been delaying investment decisions for some time already, and this would likely continue following a vote to leave.  However, nothing would happen overnight.  Treaties provide a 2 year negotiating period.  This might be optimistic considering that when Greenland withdrew in the early 1980’s negotiations lasted around 3 years and the main negotiation was about fishing.  Any negotiation for the UK would be of a completely different level of complexity.

So if you have any dealings with the UK or any other EU country, fasten your seat belts and figure out how you are planning to deal with risks that Brexit poses … preferably do this a few months ago!