You may say he’s a dreamer, but he was really a CRO

You have probably heard this story before.  The head guy as a dream, some lowly schmuck tells him what the dream means and gets a big promotion.  You might have seen it in the theater, or read it in the Torah or in Genesis.

Well, that story is really about risk management.  It just got twisted in retelling and they lost the point.

That Joseph fella, he was the Chief Risk Officer for Egypt.  It was a pretty lowly position.  Then he suggested to Pharaoh that there was some famine risk.  He suggested a counter cyclical grain reserve policy.  His suggestion was that each good year, Egypt should put aside 20% of the harvest as economic capital.

Joseph knew that no one would do this on just his say so, so he concocted this story of the dream of Pharaoh’s.  If it was Pharaoh’s dream then people would listen to the poor CRO.

It was a tough go.  After three years of good harvests people were screaming about the 20% cost of capital charge.  They said that there was no need for a reserve.  Then the fourth and fifth year of the good weather, they were going to Pharaoh with their complaints.

But Joseph pulled out his clay tablets of the rise and fall of the Nile over 2000 years and showed the Pharaoh how this was no more than a 1 in 200 reserve.  They had 10 such periods on record and the data told a pretty clear story.  They really needed such a reserve.  And Joseph could also bring in the court historian who could tell about what happened to the Pharaoh’s who were the rulers when those 1 in 200 year droughts occurred.  Most of them had to flee to Switzerland and Switzerland had not at that time invented indoor plumbing.  Not so good in the winter in the mountains.

Then Joseph brought in 10,000 slaves who each had a different clay tablet.  They were told to run around the room for a minute then to fall in line.  Joseph called this a Monte Carlo simulation, and indeed, they did run around like that in Monte Carlo in those days.

So somehow, Joseph held on to his job and his counter cyclical economic capital formula on the condition that he never did any monte carlo modeling in the palace again.  But after seven years, even the Pharaoh was running out of patience with Joseph.

Then it happened.  Joseph had never actually predicted a famine on the seventh year, but that is how the story got twisted afterwards.  But he did get credit for saving the day and the Pharaoh when the famine kept going for seven more years.

That is because Joseph pulled out more clay tablets and more historians and pointed out the likelihood of a long, long famine.  He was just about to prove his point with a “modeling” exercise when Pharaoh relented and allowed him to release the economic capital slowly.  Joseph wanted to base the release on a 99 cte calculation, but Pharaoh told him that the high priest would never understand that so just use PaR (Pyramid at Risk).

Joseph was named a hero and given a promotion to chief of staff or something, like the other CROs who survived the Great Famine Crisis (GFC).  Since the Pharaoh’s chief publicist could not understand a word Joseph said when he interviewed him about the economic capital so he remembered that old story about the dream.

So Joseph, the first risk manager on record went down as a dream interpreter instead.

And Risk Managers have had trouble getting their stories across ever since.

Inspired by The Ecoomics of Good and Evil, by Thomas Sedlecek

Explore posts in the same categories: Enterprise Risk Management


You can comment below, or link to this permanent URL from your own site.

2 Comments on “You may say he’s a dreamer, but he was really a CRO”

  1. riskczar Says:

    Excellent! Do Noah next!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: