Risk management infrastructure as a living organism

Abstract

Like any complex, intelligent, adaptive organism, a financial institution depends on the performance of its critical systems, of which risk management is one. Just as the institution’s health and longevity depend on the performance of these systems, they in turn depend on the soundness of their infrastructure. This paper examines the essential elements of risk management infrastructure in a financial institution using another complex, intelligent, adaptive organism as an analogy — the human anatomy. The critical elements of the human anatomy — brain, skeleton, cardiovascular, muscular, nervous and immune systems — all have their counterparts in the infrastructure of a high-functioning risk management system. In addition to establishing this analogy, the paper will translate the insights it provides to real-life contexts, using actual examples from the financial sector to highlight the preservative effects of robust risk management infrastructure elements as well as the catastrophic effects of flawed ones.