Getting the business - risk equation right

Years ago when I first became involved in risk management in a large regional bank I was told to keep my nose out of the “business”. And what did “business” mean? Well, simply put – making a profit at any cost!

The key issue that was (and still is) missed completely is that business strategy and risk management are closely linked. If you follow a strategy based solely on revenue, or profits or market share, without taking the risk aspect into account you are skating on thin ice. In good times you may well get away with it. But, when conditions change, that is when the chickens come home to roost.

Invariably it is senior management at many financial institutions who do not fully understand the risk profiles of their portfolios or their business models. And without this “risk” link there is the ever present potential for catastrophic collapse.

Risk management is always a “party pooper”. Risk management is that miserable little guy in the grey suit that is out to spoil everybody’s fun. Well is it not time to get this poor fellow out from that back office, invite him to the party, and to take notice of what he is saying? Remember, too much booze tonight is going to leave a massive hangover tomorrow. And risk management, while somewhat tempering the night’s exuberance will make tomorrow a whole lot better.

Perhaps, if we had all done this a lot sooner and a lot more frequently, markets and conditions generally would not be in the tizz that we find them in today.