Archive for May 2014

Instructions for a 17 Step ORSA Process

May 19, 2014

There are 17 steps to completing your ORSA.  And here are 17 essays that describe all of those steps.


1. Prepare for the ORSA

Five Intro to ERM Risk Control Cycle Topics

2.  Risk Identification

3. Risk Measurement

4. Risk Limits and Controlling

5. Risk Organization

6. Risk Management Policies and Standards

Advanced ERM Topics
7. Stress Testing

8. Risk Capital 

9. Risk Appetite and Tolerance

10. Emerging Risks

11. Interdependence of Risks

12. Risk Management Governance

13. Risk Management Culture

14. Change Risk

15. Risk Disclosure

16. Model Validation
Bringing it All Together
17. Writing the ORSA Report


Supporting Success with Risk Management

May 12, 2014

Risk Management is often seen as the Business Prevention Department and the Chief Risk Officer as the Wizard of NO.

But in some ways that can be seen as a glass half full, half empty sort of thing.

A major and sometimes neglected aspect of risk management relates to dealing with the planning for and execution of major changes.  We call this CHANGE RISK MANAGEMENT.

If we think of the Control Cycle as the major manifestation of risk management, Change Risk Management is the special process that is followed to make sure that important new things get on to the Control Cycle without stumbling.

Many times, these changes are the future of the company.  They are the new products, new distribution systems, new territories and acquisitions that will change the course of the company’s path forward.

The Change Risk management process can be performed as Business Prevention or it can be a support to the success of the company.  A good Change Risk Management process will help to identify the ways that the new activity might fail or might harm the firm.  If the Change Risk Management process is designed properly, the Risk Management inputs of that sort can be brought into the process in plenty of time to correct the problems that cause the concerns.  In that sense, fixing those problems adds to the potential success of the company.

But if Risk Management is brought very late to the process, many people have become invested in the change as it is currently planned and any input from risk management that something might go wrong is seen as an attempt to scuttle the project.


So timing and attitude are the two things that make the Change Risk Management process something that supports the success of the company.



Insanity is . . .

May 11, 2014

Albert Einstein is famously quoted as saying that

Insanity is doing the same thing over and over and expecting different results.

Of course, risk management is based upon an assumption that if you do something that is risky over and over again, you will get different results.  And that through careful management of the possibilities, you can, on the average, over time, get acceptable results, both in terms of sufficient gains and limited losses.

But there is also an embedded assumption in that statement that is hidden.  The statement should include the standard caveat “all else being equal”.

But in fact, all else is NEVER equal.  At least not out in the world where things count.  Not for things that involve people.  Out in the real world, once can count on the same result from the same actions, but only for a while.

All else never stays the same in the situations where people are involved because people rarely continue to follow rules like the rules of physics.  People keep changing what they do.

For example, the ideas of Hyman Minsky regarding the changing approach to credit.  People just do not leave things alone.  With credit, people are constantly seeking to get just a little more juice out of the lemon.

What is Real?

May 10, 2014

Two quotes about what is real…

“A fundamental part of every culture is a set of assumptions about what is real and how one determines or discovers what is real.  These assumptions do, of course, relate to other assumptions … the focus here is about how members of a group determine what is relevant information, how they interpret information, how they determine whether or not to act, and what action to take.”

Edgar Shein

“Reality is that which, when you stop believing in it, doesn’t go away.”

Phillip K Dick

Both of these quotes are highly applicable to Risk.

Risk, you see is not Real in the sense that Philip Dick defines reality.  But Risk is real in the Edgar Shein version of reality.

Because Risk is never there later.  Risk is a potential for a loss.  Later you have either had the loss or not.

You can never tell, even later, after the bets are settled, whether something was risky or not.  You can only tell whether you won or lost.  The outcome could have been a certainty, driven by factors that those who thought it was risky are unaware.




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