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Service: Advisory
Industry: Financial Services
Type: PDF
Date: 21-May-2009

Global - Issues & insights - Articles & publications - Managing risk in perilous times: Practical steps to accelerate recovery

Managing risk in perilous times: Practical steps to accelerate recovery 

In this research, which is written by the Economist Intelligence Unit and sponsored by ACE, KPMG, SAP and Towers Perrin, we examine the lessons that have been learnt from the current financial crisis, and propose ten practical lessons that could help to address perceived weaknesses in risk identification, assessment and management. Although our research is primarily directed at financial institutions, we also highlight ways in which these lessons could apply to corporates from other industries.
The ten lessons to address current weaknesses in risk management , which are listed below in no particular order of priority, can be summarized as follows:

  • risk management must be given greater authority;


  • senior executives must lead risk management from the top


  • institutions need to review the level of risk expertise in their organization, particularly at the highest levels


  • institutions should pay more attention to the data that populate risk models, and must combine this output with human judgment


  • stress testing and scenario planning can arm executives with an appropriate response to events


  • incentive systems must be constructed so that they reward long-term stability, not short-term profit


  • risk factors should be consolidated across all the institution’s operations


  • institutions should ensure that they do not rely too heavily on data from external providers


  • a careful balance must be struck between the centralization and decentralization of risk


  • risk management systems should be adaptive rather than static.
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