Tag Archives: predictive analytics

2013-04-22 by: James Bone Categories: Risk Management Risk in Transition

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The bombing of the 117th Boston Marathon is but one example of how complex new risks can occur when we least expect them.  As more details emerge about the alleged perpetrators we learn that even with the beefed-up security presence at public events traditional controls are still ineffective at preventing horrific attacks. 

Thankfully, through the vigilance of the general public, law enforcement, and new technology, such as, surveillance cameras and social media our ability to respond to such events has accelerated in real time allowing the capture of these suspects but not without additional tragic loss of life.

Law enforcement’s ability to sort through surveillance footage, cell phone and video footage from the public and other sources would not have been possible 5 – 10 years ago with the speed in which it was done to identify the assailants.  Security spokespersons also credit improved coordination of Federal, State, and Government resources along with new analytical skills for the speed and agility to zero in on the suspects.   

Much will be learned from these events to improve security in the future.  As tragic as these events are there are valuable lessons for senior managers and risk professionals in dealing with less lethal but no less important risks facing all organizations today.

PriceWaterhouseCooper’s April 2013 whitepaper entitled, “Risk in Review, Global risk in the transformation age”, goes further and explores the global threats facing organizations and risk officers responsible for dealing with a host of asymmetrical risks impacting each of us simultaneously and  over consecutive time periods.  PwC uses the term “transformation” however Michael Monahan, CRO for Pitney Bowes, succinctly states, “Transformation is a bit of an overused term.  It is part of how you do business every day now.” 

PwC’s survey and the emerging themes discussed in this report are a reasonable first step in starting a discussion about strategic risks and plans to address a world in transition. 

The themes:

  • Building a Risk Resilient firm;
  • Addressing the talent gap and building a risk aware culture;
  • Understanding social media and developing reputation risk responses; and,
  • Implementing new generation risk analytical capability

According to John Sabatini, Partner Advanced Risk & Compliance Analytics Services at PwC, “the challenge that many organizations face is that they must aggregate disparate and complex data from hundreds of source systems”.  “One in four risk executives expressed dissatisfaction with their ability to identify and forecast emerging risk.”

PwC’s survey poses more questions than answers however the events that unfolded in Boston illustrates that risk is in transition.  The challenges facing healthcare in the form of massive regulatory reform, financial services resulting from anemic economic growth and the protection of personally identifiable information or general industry in the form of supply chain disruptions from natural or man-made disaster require risk solutions that fit each organization.  Traditional GRC solutions are not sufficient to respond with the speed and agility required. 

The lessons from Boston are very clear.  Teamwork and collaboration is most effective when one person is in charge of coordinating events, assets and people to address risk events.  Leadership matters!  The inevitable finger-pointing may not be prevented but can be delayed until the events are resolved. 

Second, technology enabled faster discovery of the facts but does not create the ability to “see around corners”.  The over promise of pattern recognition and resolving risk events before they happen may eventually become a reality but is near impossible not matter how sophisticated the technology. 

Lastly, effective training and preparation through scenario planning and rapid response times help to mitigate the damage.

I hope these events do not happen in your town or organization but if they do I hope that you are better prepared by planning accordingly.

2013-04-20 by: James Bone Categories: Risk Management Beyond GRC

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A bold new experiment is taking place in the Federal government across a number of agencies to identify and address systemic risk before the next financial collapse occurs.  You may be familiar with the Securities and Exchange Commission’s Division of Risk, Strategy, and Financial Innovation. 

Over the last 3 years, the S.E.C. has revamped this Office into a “think tank” with a multidisciplinary team of professionals from a variety of academic disciplines.  This is not your father’s SEC; the team is made up of 35 PhD financial economists, financial engineers, programmers, MBA’s and other experts. 

Likewise, the Treasury Department has set up a new Office of Financial Research, which was created under the Dodd-Frank bill in 2010 to support the Financial Stability Oversight Council – the group responsible for coordinating the efforts of the top financial regulators. 

Richard Berner, the newly appointed head of the OFR, is tasked with finding threats to financial markets BEFORE they occur.  Berner, a trained economist, has some experience looking around corners as the chief economists for Morgan Stanley he and a colleague revised their forecast of economic growth in 2007 to predict the coming recession before many on Wall Street saw the signs of economic trouble. 

There is an arms race of data analytics unfolding amongst economists and researchers to create tools to recognize and hopefully avoid the next crisis.  Berner is leading this charge and is now building a new forecasting model with the help of academics and financial engineers.  Many market watchers give Berner kudos for these efforts however there are some who question whether a financial model is capable of capturing the complexity of global financial markets.   

Berner faces the same challenge of the providers of Big Data solutions.  How do you standardize all sorts of records to a common data set that everyone agrees with so that the numbers are comparable?  There is no common taxonomy for data across different firms!

The Office of Financial Research may not be able to see the future and avoid all risk events to financial markets but it does mark a new era in how risk management will be conducted going forward. 

What role does GRC play in a world dominated by predictive analytics?  What new skills are needed by risk practitioners in the future?  Berner didn’t see or understand the systemic risks inherent in a correlated global market and missed how risks in US markets might impact our European counterparts overseas.  “There are still pretty big gaps in our knowledge”, Berner said during his interview for the article. 

What is becoming clear is regardless of your business the expectation to understand data and develop a governance model for data is increasingly apparent.  Attempting to tackle this effort alone in isolated silos would be self-defeating.  The best course of action is to begin to socialize the need for data management with key stakeholders in your firm.  Agreeing on a common set of definitions and taxonomy helps create a framework for defining important data and understanding where the gaps exist.

Resist the temptation to discuss risks at this stage of discovery.  Trust the process to reveal new information and potential risks as you learn more about how data is used and managed across your firm.  Rushing to define risks may predetermine outcomes and prevent you from learning gaps you would not have anticipated beforehand. 

You may not be able to “see around” corners when you complete this exercise but you may begin to ask new questions and have a better understanding of the bottlenecks of data that prevent you from achieving higher levels of performance.  Early success is the key to how far you decide to push the envelope in your data analysis. 

Regulators are building a formidable store of information on organizations that will grow and become more sophisticated.  Risk professionals should be prepared to have an equally robust set of data to demonstrate that you are building the same level of proficiency to understand their business.

http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid=60935

Original story written by jim.tankersley@washpost.com

2013-03-24 by: James Bone Categories: Risk Management Data Gravity – Changing the game in Big Data

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