Real-time risk management: At decision time, every moment counts
A few weeks ago The New Yorker magazine sent one of its writers to the annual gathering of the Global Association of Risk Professionals. His report (subscription required), while playfully ironic, also offered insight. For one thing, since the economic undoing of 2008, he wrote, "Now risk professionals are enjoying their told-you-so moment."
Personally, I do not know any risk managers who are being smug to their colleagues on the trading desk, or to management. But I do know a few who wisely have exploited the situation to get upgrades for their risk systems. Some firms have long invested heavily in real-time systems for trading, but before 2008 they overlooked the value of real-time monitoring for risk. Now many of these companies see the light.
One of the positive ramifications of the 2008 financial crisis is that many risk professionals have been able to get the capital dollars to invest in real-time risk management technologies. Those investments might help prevent future crises by detecting and preventing untenable risk in the market.
A study done in the midst of the 2008 meltdown noted that while laden with tables, charts, and graphs, "Still, it is common that monthly risk reports exceed a hundred pages. Consequently, it may be difficult for decision-makers to identify and understand the most relevant risks and to initiate adequate countermeasures." Having visualization tools, then, is another key element for risk managers. Not only do they need better ways to see risk themselves in our real-time, Big Data world, they need to have effective ways to communicate risk profiles to upper management, which visualization offers.
As one of the risk managers interviewed by The New Yorker observed, current executive leadership, fresh out of the crisis, fully grasps the importance of risk management. But, in time, new top managers are inevitable. Then what? He answers his own question: "Do old habits creep back in? Eight hundred years of history in finance tells us: human nature does not change."
The history lesson, then, for risk managers is that the window of opportunity to get the advanced tools you need might not be open long. Don't wait to take advantage of it.
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