“Events, dear boy, events”; a quote often attributed to former British Prime Minister, Harold Macmillan when asked, what could bring down your government. For many CEO’s, CRO’s and Enterprise Risk Management professionals, the quote could easily apply when asked; “what could bring down our firm?”
This was very clear yesterday. In the face of a potential global pandemic, two of the world’s leading oil producers started an oil price war. We saw an immediate 30% oil prices drop and one of the largest declines in global stock markets in history.
The immediate impact of the events of the last 24-48 hours will leave many firms carrying significant trading losses. Ultimately, these losses will lead to a substantial destruction in the shareholder value of listed and unlisted businesses, alike. Over time, we will see which firms have the business model, strategy and operational capabilities and the capital to survive and thrive in these uncertain times.
At KRM22, we feel confident that the firms who have an integrated, real-time, enterprise-wide approach to risk management will a competitive edge.
In the aftermath, firms should be looking what they could do in the midst of yesterday’s turmoil;
What will the risk report presented at the next board or executive meeting look like? Will the team review professional, well-constructed dashboards which surfaces the enterprise-level risks and impacts of the events? Will the report show how the firm responded on the day, who is accountable for delivering any ongoing mitigation plans and the current status of those plans? During the meeting, will your senior management have the ability to look across the entire firm? Can it look beyond market risk and incorporate compliance, regulatory, technology, operational and overall enterprise risk. Will the risk report deliver the insights and analysis to enable the senior team to take a portfolio view of the firm; understanding the interplay and trade-offs between the various major risks within the enterprise?
Or will the executive team receive yet another risk report that has been hastily cobbled together? Subsequently, will they have to wade through a combination of Word, Excel and PowerPoint documents? Will they be presented with a list of Top 20 risks linked to a cumbersome spreadsheet-based risk register? Hidden amongst the hundreds of ‘key risks’, will they find two new entries; ‘the risk of global pandemic’ and ‘the risk of an oil price war’?
So, what caused those trading losses yesterday? What could cause further losses tomorrow? It was “events, dear boy, events”.
Events that can only be effectively managed using an integrated suite of risk management processes, tools and data build to deliver a real-time, event-driven enterprise view of risk. Silo systems, particularly those cobbled together on spreadsheets or that are not integrated into the firms risk data lake, create cost and complexity. They limit the firm’s ability to effectively respond to events, manage risks associated with those events and exploit opportunities that emerge from events.