Understanding risk is a start, but then companies have to develop meaningful data. For every key performance indicator (KPI), for example, companies should be tracking a key risk indicator (KRI), Friend says. "You plan not just for results, but for contingencies. What happens if sales are down 20 percent? If I'm a quarterback, what happens if the ball is intercepted?"
The lack of contingency planning evident in the banking crisis was amazing, Friend says. "You have to plan for bad things happening," Friend says. "A 30 percent reduction in house prices should not have been a shock." Planning does not take the form of a budget, he emphasizes, but involves "how do you get from point A to point B."
Failure to plan for adversity produced a nightmare for the banking industry. "If you're not modeling for rare but consequential events, you're not doing your job," Friend concludes.
Reader CommentsDisplaying 2 of 2
Steve Tuck
Feb 23, 2009 1:20 PM ET
Information value, not information volume
There are some great points in this article but it boils down to one thing; fit for purpose data. It's now more … more
Tom Miller
Feb 12, 2009 7:31 PM ET
Averting an Even Greater Crisis
It's true that better use of predictive analytics could have averted some of the lending crisis. But what's even more … more
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