Many ideas or tools in risk are recycled – regularly and
often. The development of sophisticated and accurate K.R.I.’s began with the
emergence of operational risk as a discipline and many of the really good papers
date from the period 1995-2005. Many concentrate on either operations
or customers, as they should yet fail to emphasize the monitoring process once
these tools are in place. I always
suspect that someone in the background is selling an I.T. application to do
this.
This week the topic resurfaces in RISK magazine Six steps for
preventive KRIs , and once again the concept of well-designed data
indicators is paramount. We cannot argue against well
done measurement tools, analytic or predictive, but the devil is still in the
details. An example:
A
couple of applications for risk oversight at the Board level came across my
desk, one bank and one non bank. The
chief risk officer was swamped by data driven proposals for super systems and
data mining and back testing. Both chose
a cost effective approach. Both realized
that the effort was necessary but not sufficient and asked for a dashboard for
monitoring. Both used the tools (KRI’s plus dashboard) successfully as an early
warning system; however one shared the dashboard with his Board and the other
did not (at least in the beginning). After
a couple of years both have integrated the tools into Board education as well
as staff training. We can learn from
both.
My
point is a simple one. As risk
management tools increase and decline in popularity, the monitoring and
communication process is still the foundation stone. If I could draw cartoons,
I would have a Cro-Magnon man looking at a rock while holding a stone hammer
(labeled KRI) over his head.
No comments:
Post a Comment