t E c h N O L O g y By Jeffrey kutler
First, Get the Data Right
Risk systems remain vulnerable to ‘garbage in, garbage out’
E
ver since the credit
crisis struck, there
has been no shortage of best-practice
prescriptions for
risk management.
As an example,
Hank Prybylski,
global leader of
Ernst & Young’s financial services risk
management practice, boils them down
to a few: a pervasive risk-aware culture
instilled by top management; the ability to view and analyze firm-wide risks
in multiple dimensions and perspectives;
and effective integration of risk and finance.
The first of those, the leadership aspect, is so critical that it can compensate
for many other deficiencies, says Prybylski. But once that is in place, matters
of architecture and infrastructure – both
organizational and technical – need attention. “There are practical problems
around data quality,” he notes.
That may be putting it mildly. In the
financial crisis, companies fell prey to
gaps in knowledge of their own exposures and positions. Major institutions
suffered particular pain in trying to track
counterparty risk, as noted more than
once in this magazine. In the CRO Interview (page 12), BlackRock vice chairman Bennett Golub says it can’t always
be assumed that “you know what you
own, where it is, and how much of it that
you have in all the places where it may sit
throughout the organization.” (See also
“The Elusive Goal of Real-Time Ana-
lytics,” page 40.)
There are, to be sure, technological
solutions. For Golub, the answer is in the
infrastructure: “technology that allows
quick and easy access and good communication across the firm on all exposures,”
both direct and indirect. But there is no
magic bullet. Prybylski says the quest for
data quality “is a journey, not a destination. You start with measurement and
communication tools and methodologies
that can be put in today.”
Companies such as Asset Control
and GoldenSource Corp., New York-headquartered specialists in enterprise
data management (EDM) systems, are
offering to rise to the data-architecture
and -quality challenges. After trying for
years to sell financial services companies
on the need for a consistent data framework for risk management and many
other corporate purposes – and seeing a
growing number of firms appoint “data
czars” to oversee the journey – market
conditions are making the argument
more forcefully.
At a time when “funding for any kind
of IT project is difficult to get,” notes
Gert Raeves, GoldenSource’s senior vice
president of business development, risk
is a magic word. “Without a strong risk
management benefit, projects won’t be
funded. The underlying problem is data
management – people want to be able to
trust the data they are looking at.” Inaccurate or incomplete data brings on the
classic “garbage in, garbage out” problem.
Richard Enfield, business owner of
Asset Control’s AC Plus product line,
says that financial companies are paying a price for years of inattention to
data integration issues and a propensity
to take IT shortcuts rather than adopt
unified EDM. “They have a tremendous amount of functionality that nobody takes advantage of,” Enfield asserts. “They don’t have the right data in
the right place at the right time.” With
proper EDM “wiring,” he says, “you do
it one time, and everyone in the organization can share it.”
Getting there requires systematic,
step-by-step planning. “Think big, start
small and make the right choice for initial implementation that can be replicated across business segments,” advises
Raeves. Adds E&Y’s Prybylski, “Take a
risk-based approach, identifying where
immediate and accurate data quality is
critical, and you’ll come up with pragmatic solutions.”
