Just had dinner with e EyE exco team at Cafe Biz @ Traders Hotel. Esther, Dan , Esmond and Sumit couldn't make it but nonetheless everyone still had good fun. Had a very good discussion with xinhong on risk management. According to Xinhong, Risk mgmt comes stems from the CEO, whether he/she understands the product, and whether he or she is willing to make the decision to go ahead with the business strategy or not.
What Xinhong said is very true, you need some solid ppl as CEO to understand the type of biz that he/she is going into and the risks involved. However, it might always be possible, through middle mgmt 'filtering' and personal agendas , that a business idea has its benefits overhyped and its risks under projected. Crucial information such as modelling assumptions and detailed technical aspects are not reflected completely in the presentation to the Board/CEO. So even if the CEO is very very sharp, he/she might not fully understand the extent of the risk exposure due to the lack of complete information . This is where the process of risk management helps greatly because it puts in place a system to ensure constant identifying risks in new issues and ideas and enforces an actual quantification of risk so as to 'commit to it with a greater degree of accruacy' as opposed to a 'shooting the stars' method. Of course, its kinda important that you dont' just think that the numbers derived are the final answer. Numbers lead/guide you some where, but they are never the final answer.
At the end of the day, when the processes are actually in place, then it is really the CEO's call whether they want to go ahread with a certain decision. And its really important that a CEO does not do something with the rational that the rest of the market is doing it. So therefore if we don't join in, we will lose out. While that might work for certain projects, it should not be on a consistent basis. Look at the subprime crisis. Following the herd was a costly lessons for some of the banks. Because firstly, it simlar mean that no one was really sure of a sure win strategy, and either were they really aware of the full downside that the CDOs could generate.
I think i got to write more risk mgmt stuff. I think Risk mgmt is great. It really helps to understand the coy's biz model and whether the risks taken is in line with the business values and objectives. But its not easy remembering so many different structures and seizing opportunities to think and interact with other experiened risk mgmt folks. Another big challenge is modelling. There are so many assumptions that after a while, you wonder whether the model is even correct. I presume is really all abt of balance. When to be very sharp and identify the various issues. And also to understand the technicas of modelling and how it can be intepreted.
All and all, it was a great dinner with superb company. Tmr i shall talk abit more about character building and various christian views that i'm ever learning and trying very hard to internalise.
