Risk management - how long are the tools good for?
Jinfo Blog

By Tim Buckley Owen

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Permeating almost every aspect of information for business, analytics seems to be regarded as a panacea in these uncertain times. But when it comes to long term strategic risk management, how far ahead are analytics tools capable of looking?

Sovereign credit rating agencies may be facing threats to their future at the moment (LiveWire comment here), but that hasn’t prevented their analytics businesses from apparently thriving. Moody’s, for example, is currently anticipating continuing revenue growth by year-end in research, data & analytics and risk management software, and is expecting “very strong” performance in its risk management advisory business.

Having just launched an all-singing Model Central Solution to help banks and other businesses maximise the power of their predictive models, predictive analytics technology specialist FICO is pretty bullish about its own capabilities. Its Model Builder, for example, “covers the entire predictive modelling lifecycle, including development, deployment and continual improvement”, and its Decision Optimiser has “the ability to build ranges of uncertainty into decision models and optimise strategies to account for them” (details of FICO decision management tools here).

However it remains to be seen whether such tools are applicable to the deficiencies in large scale long term risk analysis identified in a new Economist Intelligence Unit report. Risk management is beginning to inform long term strategy says The Long View: Getting New Perspective on Strategic Risk – although there still don’t really seem to be the tools yet to do the job.

With an average tenure for chief executives of around six years and a relentless focus on short term shareholder value creation, there’s little incentive to bring long term problems to the top of the agenda, the report suggests. However almost half of the 500 senior executives EIU surveyed globally were aware that looking into the future merely tended to confirm what they already knew rather than providing them with new information – and two-thirds agreed that the risk function needed to do more to challenge management’s view about how the future might unfold.

But with the data becoming more unreliable the further into the future you look, over-reliance on models could be dangerous, said one of the experts that EIU interviewed in depth, while another believed that the available tools for assessing long term risks were “not necessarily optimal”. Eighteen per cent of respondents saw the lack of available tools as a barrier, but getting on for twice as many said the big problem was lack of expertise.

Long term risk management is climbing the executive agenda, EIU concludes. But reading between the lines of Gartner’s recent list of strategic technologies for 2012 (LiveWire comment here), analytics still has some way to go before it can make a reliable contribution.

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