Risk Management

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2009 CIO Challenges: Risk Management

Industry experts discuss risk management and how CIOs will approach the topic in 2009.

Read more from WS&T's expert roundtable on the challenges CIO's face in 2009.

Julio Gomez, Mayiz Habbal, Rob Hegarty, Robert Iati

WS&T: Market stability is on everyone's mind. There has been a lot of talk about the role of technology in risk management. Is risk management technology part of the solution or part of the problem on Wall Street?

Rob Hegarty, TowerGroup: Risk management is part of the problem. We are seeing more and more in the current crisis that the technology aspects are probably secondary to some of the other problems in risk management. What we are hearing from our clients is that they need to take care of things from a policy and process standpoint before they tackle the technology. That is not to say there isn't an investment in technology and they aren't using technology, because they are. They understand that the challenge is going to be getting a handle on the process and policy side of risk management, and technology will be there to support it. They are not looking at technology as "the" solution [to risk management problems], but it is part [of the solution]. But it is not as big a part of the solution as technology is in some other areas of the firms. It is there, but it is not playing a leading role.

Julio Gomez, Gomez Markets: Risk management investment is going to go up. There is no doubt about that, especially over the near term. But the fact that risk management investment is going to go up while other IT spending goes down is going to be one of the most overused insights in the business. It is almost analogous to that perfunctory slide that everyone needs in their deck about the importance of aligning IT with the business.

So risk management spending is going to go up, but the question is the form of the investment. What is it going to be designed to do and designed to prevent? That is a question that needs some answers. And of course there are going to be, most likely, some head count increases initially in risk management areas because frankly the systems take a while to put into place and you can temporarily use people to increase the risk management capability. But this is not optimal and it is not needed in the long term.

What firms need are two things from technology. One is a platform for risk management capabilities that are present throughout the enterprise. And a lot of vendors are saying they have solutions that can consolidate, but usually that means they can roll up their own systems, not competitors' [risk management systems]. A neutral approach that uses complex event processing that ties disparate systems together -- that is what the market will move toward. CEP, which is a pretty hot technology, is now being applied to risk management because it is also useful for rolling up the risk management systems quickly and cheaply, which is ultimately what the firms need to do, especially if they eventually want to replace the head count they are going to throw at the problem in the short term.

Robert Iati, TABB Group: Risk management technology looks to be one of the few areas of growth in technology spend in 2009, somewhere in the neighborhood of 10 to 11 percent. That is significant given the overall drop in IT spend in the industry, which will be approximately a 20 percent decrease. Risk management technology is certainly part of the solution, but it can't be looked at as the ... panacea. While technology needs to improve, the issues around operational management, understanding the risk exposure, improving on the quality of the data that they were using in the risk models, and analytics that help identify the exposure and hedge the exposure are bigger issues than pure risk management technology. Overall you could look at that as a more holistic solution to the problem.

Mayiz Habbal, Celent: The simple answer is that it is not only a consequence of risk management technologies. There is a human element to this crisis that really manifests itself in the fact that when all of the procedures and processes that had been fine-tuned and put in place, when the output was shown to the decision makers, the decision makers ... were on a very joyful ride, and whatever came out of the models and the technology that supported the [risk models], the [results] were a little disregarded. "A little disregarded" is not the strongest term here, but there was a lot of disregard to these models.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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