Tuesday, March 19, 2013
Unscripted
By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
Risk management procedures are a script; a set of decision trees. Dodd
Frank and Basle III are the ultimate scripts, in which no stage direction is
left for the actor to interpret. However do you think the Gods of risk
use a script?
Problems are unscripted. Issues are unscripted. Danger is unscripted.
Opportunities are unscripted.
Are your risk managers acting according to script?
Wednesday, March 6, 2013
Analogy
By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc. Steve Lindo, who is a risk expert with extensive experience in risk management, recently wrote a very interesting paper in the Journal of Risk Management in Financial Institutions. The title of the paper is “Risk Management Infrastructure as a Living Organism”[1] In his paper, Steve creates the analogy that risk management in a financial institution is like one of the body’s critical systems. To quote the abstract, “This paper examines the essential elements of risk management infrastructure in a financial institution using another complex, intelligent, adaptive organism as an analogy – the human anatomy.” There are many things to like about this paper, and in particular the fact that it points out that risk management and the management of financial institutions is a complex task (as opposed to a complicated task). This implies that you need to treat risk management and strategy in a holistic manner. You cannot fix solely the heart if it causes the nervous system to malfunction. However the main thing I like about this paper is that it uses an analogy from another field – namely anatomy. As risk managers we have a lot that we can learn and use from examining how other fields of practice handle similar issues. Using analogies helps one to see things in a slightly different way, and that in turn leads to breakthroughs. The types of problems in risk management also exist in other fields. The use of more analogies like Steve Lindo uses will help us in risk management to learn better, faster and more efficiently. [1] S. Lindo, 2013, “Risk Management Infrastructure as a Living Organism”, Journal of Risk Management in Financial Institutions, Vol 6, 1, 67-74
Partner, RSD Solutions Inc. Steve Lindo, who is a risk expert with extensive experience in risk management, recently wrote a very interesting paper in the Journal of Risk Management in Financial Institutions. The title of the paper is “Risk Management Infrastructure as a Living Organism”[1] In his paper, Steve creates the analogy that risk management in a financial institution is like one of the body’s critical systems. To quote the abstract, “This paper examines the essential elements of risk management infrastructure in a financial institution using another complex, intelligent, adaptive organism as an analogy – the human anatomy.” There are many things to like about this paper, and in particular the fact that it points out that risk management and the management of financial institutions is a complex task (as opposed to a complicated task). This implies that you need to treat risk management and strategy in a holistic manner. You cannot fix solely the heart if it causes the nervous system to malfunction. However the main thing I like about this paper is that it uses an analogy from another field – namely anatomy. As risk managers we have a lot that we can learn and use from examining how other fields of practice handle similar issues. Using analogies helps one to see things in a slightly different way, and that in turn leads to breakthroughs. The types of problems in risk management also exist in other fields. The use of more analogies like Steve Lindo uses will help us in risk management to learn better, faster and more efficiently. [1] S. Lindo, 2013, “Risk Management Infrastructure as a Living Organism”, Journal of Risk Management in Financial Institutions, Vol 6, 1, 67-74
Tuesday, March 5, 2013
Technical Presentations
By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc. Non-technical people do not like technical presentations. In my experience this tends to be particularly true for executives (but not all executives). Technical people also tend to squirm through non-technical presentations, and also tend to take them less seriously than they should. Two facts that are often not appropriately appreciated in risk management.
Partner, RSD Solutions Inc. Non-technical people do not like technical presentations. In my experience this tends to be particularly true for executives (but not all executives). Technical people also tend to squirm through non-technical presentations, and also tend to take them less seriously than they should. Two facts that are often not appropriately appreciated in risk management.
Monday, March 4, 2013
Carlin CRO
By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc. Waiting for my wife to get ready to go out this past weekend, I watched an old tape of the late comedian George Carlin. I have been a big fan of George Carlin since I was in high school. I really liked the way that he took our collective arrogance and brought it down to size. George Carlin made a career out of taking people’s opinions and actions about issues and events, and taking them one step further than most to show how illogical some of our most rational seeming ideas can be. In essence he showed the absurdity of conventional wisdom. After watching the tape, I asked myself howe as a finance professor.ame="L鄰甯翿
Partner, RSD Solutions Inc. Waiting for my wife to get ready to go out this past weekend, I watched an old tape of the late comedian George Carlin. I have been a big fan of George Carlin since I was in high school. I really liked the way that he took our collective arrogance and brought it down to size. George Carlin made a career out of taking people’s opinions and actions about issues and events, and taking them one step further than most to show how illogical some of our most rational seeming ideas can be. In essence he showed the absurdity of conventional wisdom. After watching the tape, I asked myself howe as a finance professor.ame="L鄰甯翿
Thursday, February 28, 2013
Middle School
By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc. In Middle School (grades 7,8 and 9 where I grew up) we were allowed to read anything we wanted for 20 minutes each morning. Anything. Of course, middle school kids will be middle school kids, and so for the first few weeks students tried to see how far they could take the read “anything” rule. Yes, there were reading materials that would not be appropriate for that age group, and yes there were comic books etc. However in a short period of time something funny happened; namely kids started reading “good” stuff, namely stuff that was educational, literate or just plain interesting and useful. Students actually looked forward to reading time, and anecdotal evidence indicates that they did a lot more reading at home – despite the popularity of Mork and Mindy (obscure reference for those of a certain age). I am willing to speculate however, that once we were forced to read in High School that our willingness to read – to read anything – went down dramatically. Left to their own choices, most reasonable people will make good choices, and they will make those good choices willingly. Forced to do something however and the task becomes harder to accomplish, and is only done grudgingly. Dr. Heidi Grant Halvorson, in her book Success: How We Can Reach Our Goals, http://www.amazon.com/Succeed-How-Can-Reach-Goals/dp/0452297710/ref=sr_1_2?s=..., talks about this phenomenon as tasks that we perform with an intrinsic motivation - tasks that we perform to please ourselves - versus tasks that we perform with an extrinsic motivation– tasks that we perform to please others, or because others force us to. The evidence is clear from numerous studies that developing an intrinsic motivation in students leads to much better results. At this point you may be asking what the heck this has to do with risk management. As an external consultant to several different types of institutions I see a similar effect all of the time when it comes to risk procedures. This is particularly true in financial institutions. Bankers often feel that the risk rules are needlessly rammed down their throats without them having any say. Basically this leads to resentment at best, and hostility towards the risk department and the risk rules in many cases. Bankers are forced to be extrinsically motivated, and the results are far from optimal. In times of crisis, certain risk rules may have to be followed. However in non-crisis situations a little bit of managerial skill on the part of the risk department may go a long way. If you allow reasonable employees to make their own choices, in time you will find that they will make very reasonable choices, and will do so willingly and to much greater effect. Perhaps risk managers should take a page from my Middle School Principal.
Partner, RSD Solutions Inc. In Middle School (grades 7,8 and 9 where I grew up) we were allowed to read anything we wanted for 20 minutes each morning. Anything. Of course, middle school kids will be middle school kids, and so for the first few weeks students tried to see how far they could take the read “anything” rule. Yes, there were reading materials that would not be appropriate for that age group, and yes there were comic books etc. However in a short period of time something funny happened; namely kids started reading “good” stuff, namely stuff that was educational, literate or just plain interesting and useful. Students actually looked forward to reading time, and anecdotal evidence indicates that they did a lot more reading at home – despite the popularity of Mork and Mindy (obscure reference for those of a certain age). I am willing to speculate however, that once we were forced to read in High School that our willingness to read – to read anything – went down dramatically. Left to their own choices, most reasonable people will make good choices, and they will make those good choices willingly. Forced to do something however and the task becomes harder to accomplish, and is only done grudgingly. Dr. Heidi Grant Halvorson, in her book Success: How We Can Reach Our Goals, http://www.amazon.com/Succeed-How-Can-Reach-Goals/dp/0452297710/ref=sr_1_2?s=..., talks about this phenomenon as tasks that we perform with an intrinsic motivation - tasks that we perform to please ourselves - versus tasks that we perform with an extrinsic motivation– tasks that we perform to please others, or because others force us to. The evidence is clear from numerous studies that developing an intrinsic motivation in students leads to much better results. At this point you may be asking what the heck this has to do with risk management. As an external consultant to several different types of institutions I see a similar effect all of the time when it comes to risk procedures. This is particularly true in financial institutions. Bankers often feel that the risk rules are needlessly rammed down their throats without them having any say. Basically this leads to resentment at best, and hostility towards the risk department and the risk rules in many cases. Bankers are forced to be extrinsically motivated, and the results are far from optimal. In times of crisis, certain risk rules may have to be followed. However in non-crisis situations a little bit of managerial skill on the part of the risk department may go a long way. If you allow reasonable employees to make their own choices, in time you will find that they will make very reasonable choices, and will do so willingly and to much greater effect. Perhaps risk managers should take a page from my Middle School Principal.
Tuesday, February 26, 2013
Outside In
By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.Like most business people, I read at least accurate). It is well accepted that it is critical to not fall too far behind in this information age.As an avid newspaper reader, I consider myself to be relatively abreast of the major topics that concern my day to day activities. This is particularly so when it comes to my community and my country. Also it appears to be obvious that the best way to keep abreast of my community and my country is to read the local newspapers and the national newspapers. The reporters for these publications live in the places they are writing about and understand the history of the issues and how they affect the community.However, I find that it is sometimes – maybe even most times – most informative to read about my community and country by reading the views of a foreign journalist. While they might not have the “on-the-ground” insight, they often offer insights that the local journalists miss. Seeing your community through the eyes of an outsider can be illuminating. Sometimes it can be a rude shock, but in those cases it is often the shock that you need to better understand the issues.Risk departments can be like local journalists. They understand the issues and the history well, and they appear to have their finger on the pulse of the important issues. However, because of their “embeddedness” they may also miss issues that outsiders more readily pick up on.Those who dismiss outside sources of information do so at their peril and at their own loss.
Partner, RSD Solutions Inc.Like most business people, I read at least accurate). It is well accepted that it is critical to not fall too far behind in this information age.As an avid newspaper reader, I consider myself to be relatively abreast of the major topics that concern my day to day activities. This is particularly so when it comes to my community and my country. Also it appears to be obvious that the best way to keep abreast of my community and my country is to read the local newspapers and the national newspapers. The reporters for these publications live in the places they are writing about and understand the history of the issues and how they affect the community.However, I find that it is sometimes – maybe even most times – most informative to read about my community and country by reading the views of a foreign journalist. While they might not have the “on-the-ground” insight, they often offer insights that the local journalists miss. Seeing your community through the eyes of an outsider can be illuminating. Sometimes it can be a rude shock, but in those cases it is often the shock that you need to better understand the issues.Risk departments can be like local journalists. They understand the issues and the history well, and they appear to have their finger on the pulse of the important issues. However, because of their “embeddedness” they may also miss issues that outsiders more readily pick up on.Those who dismiss outside sources of information do so at their peril and at their own loss.
Monday, February 25, 2013
Two Teams
By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc
Two teams went into a case competition that was based on risk management. One team created a solution with lots of bells and whistles and fancy analysis. It was state of the art. Another team went basic. The judges, who were senior line managers, did not understand the state of the art. The team with the basic presentation won.
All sorts of lessons tied up in this. Anyone learning?
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