Links Risk Advisory

http://business.timesonline.co.uk/tol/business/related_reports/business_solutions/article5792397.ece

Hi, a quick update:
Firstly, a story on the growing importance of Game Theory in business. We will be addressing some of these issues and how companies can utilise Game Theory in later blogs but at LINKS we find it interesting that this subject is growing in coverage. Game Theory has been utilised for hundreds of years, and was popularised by the Nobel prize winning John Nash. When fully understood and appropriately used, it is an extremely powerful business tool.

Secondly, there was an article in the Times on Monday suggesting that risk managers aren't listened to (1 in 8). Firstly, if 7 in 8 are listened to, that's not a bad strike rate. It is possible that the 1 in 8 who aren't listened to are overly conservative. Some risk managers in the past have employed tactics along the lines of, "if you don't play you can't lose". However, this isn't conducive to good business. Any corporate is in the business of taking risk. What sets them apart from their competition is getting more buck for the risks that they do take as well as how they manage risks when they go wrong. If risk managers aren't supporting this ethos they will rapidly lose influence in their institution.

For example, if business was done despite a risk manager suggesting it shouldn't be, and this business then proceeded to make money, that risk manager will be less likely to be listened to second time round, even if the risks taken for the money made weren't appropriate.

Risk management in Corporations needs to focus on devising clever hedging strategies which support their business models and ensuring their institutions are taking appropriate risk. A risk manager's most important job is to help his CEO understand as much as possible about the economic landscape and all the possible pitfalls which may await. The fully informed CEO is then able to try to maximise his companies PnL, with risks either planned for or hedged.

Happy hunting,
Andy