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Tuesday, June 30, 2009

Are Black Swans BS?

Had a great discussion at the Breakfast Roundtable (CFO Core Concerns Conference in Boston) the other week. Mostly a collection of CFO's and CRO's (Chief Risk Officer) from a variety of companies. I especially enjoyed the question posed by Brenda Boultwood, CRO of Constellation Energy: "Was 2008 a failure of risk management or a failure of management to heed the warnings of risk management?"

While the media slammed risk management in general -- and VAR in particular -- I am more inclined to think that the risk managers have a good process that can spot systematic risks and cascading failures. In all the work I've done with Crystal Ball, it seems that the relatively easy part is for the analyst to figure out the issues and the hard part is driving organizational change. For some, seeing the range of possible outcomes given the uncertainty of the inputs, is one way to drive that organizational change.

Next up, Nicholas Nassim Taleb will be at the next CFO conference in Las Vegas, Sept 20-22. I'll be looking forward to his take on the role of risk managers in our now very uncertain world.