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26 November 2012Cubillas Ding
I am working on a series of future oriented research related to the future of risk management and speaking to a number of firms: from financial institutions stakeholders at the forefront of risk management challenges; to new risk technology startups, as well as investment and private equity firms interested in opportunities that the evolution in risk management is bringing. When speaking with firms, the challenges of (what I term as) operational orchestration often comes up in one form or another. Here, one critical factor for success in achieving the right degree of orchestration entails developing and implementing the technology and operational infrastructure to deliver and embed requirements in day-to-day workflows. Nevertheless, in our experience, this area is where risk appetite and strategic objectives/measures get lost in translation, and where big picture ambitions are misaligned with the right execution in front line functions. The conundrums are typically characterized as follows, in particular:
- Ensuring proactive and timely capture, monitoring and escalation of risk before they inflict material damage. There is a need to “right speed” latency of risk information delivery, in accordance with the velocity of risk in different parts of the firm’s portfolio and under different market conditions (e.g., lending/ banking book transactions may require significantly less latency compared to the trading book; normal vs. stressed conditions will exhibit different risk characteristics).
- Accelerating go-to-market time for risk management initiatives, yet reducing project risks associated with the pace and pressures of regulatory driven risk projects. For example, we observe forward-thinking firms actively expanding the use of quality management, rapid development methodologies and tools which enable IT architects, business analysts and testing teams to better achieve the precise mapping and modeling of changes within the firm. Here, as the financial industry evolves to become what I term as "ultra regulated" (for instance, akin to the utilities and nuclear industry where critical risk incidents result in significant catastrophes and loss of lives), IT planning and delivery functions will need to raise their game (note: not only to the expectations of regulators).
- Finding cost effective ways of delivering risk technology capabilities. In a situation where changes are fast-paced, complex and expensive to execute, firms would be wise to explore answers to the following questions: How can we maintain strategic flexibility and explore alternative technology options to go-to-market faster e.g. open source analytics, cloud deployments, joint R&D arrangements, venture capital, etc.? What technology ‘bets’ should a firm be placing, and when? How much should you wager? What is the right mix of short-term and long-term 'bets'?
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