Expert Input: On The Current Financial Crisis
Expert Input: On The Current Financial Crisis
Expert Input: On The Current Financial Crisis
NPUT
16
The Actuary
february/march 2009
In gleaning the lessons learned essays, several aspects of enterprise risk management
are identified that are clearly necessary
for its success. Without these necessary
conditions, it is apparent that the discipline
ultimately fails. These aspects relate to a
culture that requires alignment of desired
performance with incentives of managing
risk and reward, and not just reward. There
are many lessons to be learned from the
essays. I suggest that five critical lessons for
prudent enterprise risk management can be
gleaned from the essay writers. They are:
Incentive compensation requires
appropriate alignment with desired
performance.
Nobody should have the authority to
make decisions without accountability.
Do not assume the risks that you have
not managed today, will be manageable tomorrow.
Remember the M in ERM is for
management. Modeling is only the
analytic tool.
Assume that in crisis mode, everyone
behaves the same.
february/march 2009
The Actuary
17
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The Actuary
february/march 2009
way be risk adjusted, the amount of profit actually released may better bring to
balance risk-return tradeoffs needed and
increase transparency.
Optimizing any risk and return decision making requires an appropriate alignment of
authority and accountability. Without this
february/march 2009
The Actuary
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The Actuary
february/march 2009