- Published: Tue, Nov 8, 2022 10:08
In a recent speech, Joshua Rosenberg, senior vice president and chief risk officer at the Federal Reserve Bank of New York, highlighted misconceptions that keep organizations from getting the most out of their risk management.
Speaking at the Central Bank of Nigeria’s 2nd National Risk Management Conference, Rosenberg said:
- first time [misunderstanding] Risk management is primarily a way to prevent bad things from happening. Of course, risk management should help reduce the frequency and magnitude of negative events, and recover more quickly and effectively when negative events occur. Giving you the tools to work more efficiently should also help you do the right thing. Not changing can be riskier than changing, so innovation is an essential tool for managing risk. For example, an incredibly powerful risk management activity is to transform a slow, often failing, manual process into a fast, efficient, automated process that can self-correct when problems arise. Clearly, understanding the risks of not doing something is just as important as understanding the risks of doing something. And when we understand risk appetite and risk, we can comfortably conduct controlled experiments and learn and innovate faster. We are no longer driving in the dark. Get where you want to go with your headlights on, stay inside the guardrails and don’t slide off the road.
- Second, it can be misinterpreted that risk management is primarily the responsibility of risk management professionals. In fact, effective risk management is how everyone in your organization gets things right. From economic analysts to cash processing operators to software engineers, our readiness for change and our ability to adapt to surprises enable us to plan, make decisions and act better. Therefore, most of the risk management that occurs within an organization is done by people whose job titles do not include the word “risk”.
- And third, risk management can be misinterpreted as an attempt to create a contingency plan for anything that could happen. It is important to prepare by scanning the horizon, examining the range of possible futures, and understanding how those futures may help or undermine the desired outcome. We want to invest in an effective response to But no organization has the resources to prepare for every possibility. And no matter how creative we are, we can’t imagine everything anyway. Effective risk management is therefore more than planning. It’s about creating the ability to adapt to and recover from unexpected shocks. This is what we often mean when we talk about resilience.
Read the full speech.