Risk management is rubbish at prevention of future risks

Is risk management rubbish at prevention of future risks? What are the major risks facing financial concerns? Unknowns. What are the unknown unknowns? You may have to use your imagination in any environment and those who predict something are not always that great unless they can demonstrate significant profits from the course they have taken away from orthodoxy. However when orthodoxy goes wrong eg with over-sophistication, no-one ever seems to spot it soon enough.

Let’s flesh this out. One of the biggest operational risks is caused by over-sophistication or in old-fashioned English being too clever for your own good or too clever by half. Companies and managers (like Governments) are far too clever and sophisticated in doing things but eventually it will end in tears as either the systems can’t cope, aren’t properly documented, staff shortages and even sabotages or inexperience, excessive staff turnover and loss of the key intellect and other staff etc may mean for instance the pricing does not work, the derivative is disastrous etc Documentation is only any good if someone else understands it and can be bothered to make that effort. So a thousand page manual is in theory good documentation. However in practice it is a waste of time as who will read it and remember it. Look at the ipod nano.
Risk management is poor as they need to be fully integrated with the (Internal?)Audit Function so that everything is thoroughly and regularly checked and understood. This is more so when companies are involved in joint ventures with financial concerns. The financial concerns should have the expertise (apparently) and the company pays accordingly. Also both parties should be handsomely rewarded. But as we already know (eg LTCM) experts and intellects are not guarantees of success all the time.

Monitoring does pick up many faults…but will it be too late?

Internal Audits need to be more pro-active and thorough. The system’s supposed to do this and it will not always be enough to spot check a few things.

Mistakes happen but the secret is to make ones that don’t matter too much. For instance typos are a nuisance here but unemployment vs. in employment is a huge typo (which I nearly made once in an e-mail).