Photo by Janilson Furtado
Given the unprecedented times of the last two years, it’s reasonable for risk practitioners to be cautious. Typically, risk managers can make calculated forecasts based on the collected data from the years prior. This has always been an effective tool in calculating and managing risk, but the COVID-19 pandemic has caused a rift in the usage and reliability of traditional risk models. A prime example of this is when the pandemic first began in 2020. These traditional models were being used in the medical field to predict the number of cases, hospitalizations, and deaths resulting from COVID-19, but the outcome was not as expected.
In a January article posted on GARP, Clifford Rossi, concludes that five areas are most likely to be impacted by these uncertainties: market and interest rate risk, regulatory and compliance risk, human capital risk, reputation risk and credit risk. He dives into the unpredictable markets that will have to be navigated by risk practitioners with threats to interest rates, regulatory changes, supply-chain disruptions, among other areas. Rossi, states that risk practitioners should lean more on judgment and experience than putting more weight on data analysis in this time of uncertainty. Though traditional financial models have proven to be effective tools, the pandemic has spotlighted their limitations.
Read Rossi’s full article here.