Monday, February 01, 2010

Practical Steps for Corporate Risk Management

The Economic Intelligence Unit (2009, "Managing Risk in Perilous Times: Practical Steps to Accelerate Recovery," London) recently published a white paper admonishing corporations regarding the practical steps necessary to accelerate recovery during these perilous times. The lessons and steps outlined in the report are instructive for corporations of all industries:
1. Risk management must be given greater authority.

2. Senior executives must lead risk management from the top.

3. Institutions need to review the level of risk expertise in their organization, particularly at the highest levels.

4. Institutions should pay more attention to the data that populates risk models, and must combine this output with human judgment.

5. Stress testing and scenario planning can arm executives with an appropriate response to events.

6. Incentive systems must be constructed so that they reward long-term stability, not short-term profit.

7. Risk factors should be consolidated across all the institution’s operations.

8. Institutions should ensure that they do not rely too heavily on data from external providers.

9. A careful balance must be struck between the centralization and decentralization of risk.

10. Risk management systems should be adaptive rather than static.


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