Another Point of View
Good Risk Management requires people who can see things from another point of view.
The various tasks that are required for good risk management actually require different people with different points of view.
- Loss Controlling requires people who are going to be willing to painstakingly review everything that the firm does to make sure that there are not any unintended accumulations of risk (or any risk accumulations that are being deliberately hidden). These people need to have a point of view that focuses on the details.
- Risk Steering requires people with almost the opposite point of view, the big picture people. To do good risk steering one must look past all of the details of risk and concentrate on the broad themes of risk that the firm is taking.
- Risk Trading requires people who are very outward focused, who are able to pay attention in the subtle and not so subtle changes in attitudes towards towards different risks in the marketplace. They also need to be able to discern when changes in the company’s offerings or changes in the risk of the environment. Their task is to make sure that the price that the company is getting for the risks it assumes is sufficient to pay for both the expected losses as well as appropriate compensation for the possibility of excess losses.
- Emerging Risks management requires people who are able to think outside the box, sometimes totally outside of the box to notice the faint signals that something is changing or something totally new is starting to happen and to imagine what might be needed to cope in the new situation.
Those are just not the same people. So a smaller firm that has assigned their risk management to one person will be disappointed if that one person is not able to tap the skills of others who actually are readily able to think in these totally different ways.
That is one of the ways that risk management disappoints top management and frustrates the people asked to do it. Even when an assigned risk manager is allowed or even encouraged to tap into these various other skills and points of view, it is very difficult for one person to even recognize the value of each of these different approaches. More often the assigned risk manager will plow ahead building the risk management program that fits with their own point of view.
So no matter who you are and how good you are at risk management, remember to look for those people with the point of view that is very different from yours. And pay attention to that they say about risk.