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Risky Games?

Optimize Blog - February 12, 2010 - 0 comments

John Varley, the man at the top at Barclays, has responded to the calls to limit the size of the banks.  Mr Varley points out that it is not the size of the bank that should be controlled but rather how they manage risk.
Whilst he readily agrees that banks’ should not be allowed to be “too big to fail”, he feels that the tactics from regulators will not necessarily deliver this scenario if they just focus on size and not how the bank decides to determine, asses and then manage exposure.
Management of risk is an interesting matter for companies and whilst it is a core competence of insurers, for other organizations there is almost always a constant tension between risk and reward.  This is usually complicated by shareholder demands for relatively quick returns on investments which may conflict with the management of risk over time.
The question businesses need to consider is ‘how do we manage this tension between risk and reward and what lessons can be learned from the track record of organizations in recent years?’
The global financial crisis provided a stark reminder to all of us of the consequences of failing to effectively manage risk. Greed and hope make poor bedfellows.
As we emerge from the recession it is increasingly apparent that those organizations who have adopted a longer term view, who have resisted the temptation to ‘roll the dice’ with shareholders cash and who have carefully and systematically reviewed and adjusted their risk position to ensure that it remains appropriate for their business, who will be best positioned to exploit new opportunities.
An interesting comparison can be made with the efforts of the organizers of the 2010 Vancouver Olympics to address the challenge of hosting some alpine events on a coastal mountain resort during one of the warmest winters on record.
Despite the desire to locate some events near to Vancouver itself, the original decision to host these events at Cypress Mountain has been described by many observers as ‘risky’.  However, in reality the decision was not taken without weighing up the consequential risk factors and, ultimately, it was considered that the odds of exactly this situation arising were sufficiently low as to make it a good call.
What has been really impressive is the risk mitigation program led by Tim Gayda, VP of Sports for VANOC.  Starting almost 10 years ago a series of eventualities were identified, considered and planned for.  The result has been an assured confidence that the Cypress events could progress despite weeks of warm weather and rain.
The stockpiling of local snow and the importing of fresh snow from other resorts (up to 5 hours distant) by road and helicopter, the building of artificial snow banks, adjustments to training schedules, the selective use of refrigeration pipes and (potentially) chemical hardening agents were all planned and coordinated well in advance and the relevant contractors put on notice ‘just in case’ this situation arose.
Without such a robust risk evaluation and mitigation project, the operational impact on these games and the reputational impact on Canada could have been disastrous.
If only the world’s financial institutions had been so diligent…

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