Changing The Way Business Schools Look At Risk Management

In the past 10 years especially, there have been a number of major changes in the banking world. Not only have regulations and capital requirements increased, but many financial institutions were forced to lay off employees when profits plummeted in the wake of the financial crisis. Even more so, of those employees that were involved in the lending that led to the crisis, the way many look at risk now is likely much different than the attitudes held in 2005 and 2006.

With so many changes, how will business schools change? In particular, how will risk management be taught? In an article for the Financial Times, Michael Rockinger suggests bringing in ethics to the classroom.

“Business schools should adopt a different tack in the teaching or risk management and teach increasingly sophisticated risk models that encompass different scenarios, including extreme possibilities, while at the same time addressing matters such as education on ethics and superior governance and management in the round.”

In addition to knowing the formulas of risk management tools, removing the emotions of lending, in particular the temptation of short-term rewards, could have prevented some of the risky investments and loans made shortly before the crisis.  In many cases, it is likely the idea of a high short term benefit overtook the lessons learned in business school, no matter how well-versed in risk management a lender was.

For current lenders, automated decision can also help. By relying on raw data when making investments or loans, decisioning software can remove the temptation of the short term rewards that led many lenders astray, and instead help financial intuitions choose the stronger investments that will provide benefits in the long run. With automation, companies can see more clearly what is needed for a strong investment instead of turning to the riskier choices that may initially seem more appealing.

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