Making Robust Decisions

René Doff

The risks faced by an organisation can generally change for two reasons: due to the external environment and by internal processes. External changes that change financial markets can, for instance, be from a catastrophic event, new government policies or the ethical preferences of the general public. Internal changes are mostly due to deliberate decisions, provided we run a well-governed organisation. Examples here are decisions to change the asset allocation, or launch a new product, regular price updates, optimising the liquidity buffer or setting up a new communication strategy.

Both types of cases require decision-making. Decisions can be well-founded, properly organised or more implicit. It is good to be aware of the changes in risk profile that any business decision can cause. The distinction between external and internal changes in the risk profile is useful – after all, external changes happen to us, and we don’t normally have an opportunity to influence the event itself. This requires a continuous monitoring of the external environment. A good risk manager understands that the consequences of an event should be managed by decisions to mitigate the risks.

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