It is with great pleasure that almost three months since I started blogging that I reach my 51st post. Why is the 51st so important? It isn’t really but for me passing a milestone such as 50 or 100 or 1,000 seems less important than achieving the one after the milestone. If that makes no sense, just realise it made less sense writing it!
So, moving onto the theme for this post – “the innovation of risk is an imperative”.
Over the coming weeks I will continue to come back to this theme, but for this post I am going to focus on the what and the why of this theme.
What is the innovation of risk ?
The innovation of risk represents enhancing risk in such a way that it delivers a superior business performance through the improved relationship between risk and return. That is, the business is able to make better business decisions through utilising the risk lens, along with other lenses, in such a way as to have the appropriate risk analysis performed.
You will notice at this stage I am not referring to risk management. That is because the risk management function is the group that provides the business with the appropriate frameworks, tools and techniques to perform quality risk practices.
The innovation aspect refers to brain-storming and implementing new ideas to improve the outcomes for a particular area. Therefore, the innovation of risk represents implementing new ideas to improve the practices of risk for the business in such a way as to enhance the business outcomes.
Shortly I will detail some current thinking I have in innovation for risk, but before that let’s talk about the why.
Why the innovation of risk is an imperative?
The innovation of risk is an imperative because the world is changing around us every second of every day, and therefore if the risk practice is not continually innovative it will not make an effective impact on the business, and potentially may result in the business making wrong decisions through incorrect information from a risk perspective.
We all look at the global financial crisis and see an event that was unpredictable and outside the norm, however I personally believe there were warning signs well before the event. The inability to innovate risk around knowledge and data mining of the internet was one key reason. For example, it is clear that many people were talking about CDOs and subprime but no-one was scanning for all the collective knowledge and sharing that knowledge to think through the potential impacts.
This is what makes the innovation of risk as an imperative.
Some examples of the innovation of risk
Here are some examples of where I am thinking about the innovation of risk:
- Using mind mapping techniques to develop a better risk analysis process;
- Implementation of data mining and analysis of the internet for key words and phrases for warning signs such as using google alerts and yahoo pipes;
- Implementing knowledge sharing and collaboration tools to improve the ability to transmit information real-time and in a way the encourages participation of new ideas and thoughts;
- The world is changing every moment so we need to be more effective and efficient at implementing changes in risk practices, which can be done by moving away from policies and towards principles;
- Utilising scenario planning techniques to enhance the inward lens of analysis which in turn allows us to improve the outward analysis;
- Enhancing our quantitative methods to utilise data in such a way to have a more detailed and in depth analysis of all risk categories, particularly operational risk (i.e. we should not say our models are flawed and unusable because of one single event but rather determine how we can improve and enhance them); and finally
- Investing in mathematical techniques and labs that consistently enhance and improve our risk models so as to constantly improve the outcomes.
There are plenty more of these example we can each think of, and just as my point states above, we need to share these more so as to continually enhance the innovation of risk and deliver on the promise of better risk / reward results and the business imperative that this represents.