Do banks and colleges understand risk management?
It’s great to see CNN talking about the popularity of risk management classes at Columbia. See this video. But, it is important to listen carefully:
- The class is about financial engineering
- They are training people to ‘run the models’ for banks and financial services companies
- They don’t mention enterprise-wide risk management
Let’s not confuse the management of portfolio risk with the management of risk to the achievement of objectives.
Quants have their place, their value.
But, so does a common-sense approach to understanding all the potential effects of uncertainty on the success of the business – which are not limited to financial positions, and cannot all (sorry quants) be modeled.
When the risk managers at the major banks, insurance companies, and trading houses talked about risks – such as the potential for prices to drop – did they consider reputation risk? Sometimes you need to temper the desire for short-term trading profits (achieved by taking advantage of those less-informed than you) when it could cause long term reputation damage to the company.
I will cheer when I see Columbia and the other major schools teach ERM.
By the way, why isn’t risk management a core element of every MBA program?
Do banks and other financial services companies understand the necessary depth and breadth of risk management? I would love to hear.