The busy Credit Risk manager has many demands upon his or her time, and now and then it can be instructive to step back a little from day-to-day cares and pressures to consider again the key drivers of our own future progression as risk managers. Can we align our own evolution as Credit Risk professionals with the evolution of our Credit Risk Strategies?

The rapid development of Credit Risk techniques and technologies over the past 40 years means that the evolution of Credit Risk decision making processes has been an evolutionary progression.

However, sophisticated models, decision engines and comprehensive data streams may tempt us to conclude that we are seeing 'The End of History' – at least as far as major leaps in Credit Risk management techniques are concerned – that strategy evolution has reached a plateau, and incremental gains are what we should strive for.

This is almost certainly untrue as it does not account for the fact that businesses tend to evolve strategies selectively, depending on appetite, resource, technical constraints and a whole range of other factors. There are few areas of Credit Risk decision making that are unlikely to see reasonable rates of return by judicious investment in resource and the use of more advanced techniques.

As well as considering evolution to be a good thing in itself; as Darwin said, “It is not the strongest of the species that survives, nor the most intelligent that survives, it is the one that is the most adaptable to change”, Credit Risk managers should not shy clear of taking personal and professional growth factors into account when deciding whether to invest their own and their staff’s time in taking a step upwards in Credit Risk strategy evolution.

Whether this is the introduction of new decision systems, the development of new scorecards or the introduction of optimisation technologies, there is considerable personal capital to be obtained by expanding the capabilities of oneself and one’s own team. In fact, it could be said that there is a considerable alignment between the progressive adoption of more and more sophisticated techniques and the personal and professional growth of the manager.

Shown below is what we could term the risk manager’s own personal 'hierarchy of needs'. Whilst not strictly evolutionary in structure, a migration up through the levels of this structure certainly implies the use, or movement towards, a steadily more sophisticated range of credit decision making developments and tools.

There is an upwards movement away from 'basic' or 'safety' needs (where demands on the risk manager are rather more 'coercive' in nature) – into a more sophisticated 'developmental' region – here we are looking at an expanding personal skill-set, recognition by peer groups and perceived value add by use of advanced techniques such as analytically driven strategy design, decision optimisation and the introduction of more advanced decisioning systems and processes.

John Worthington - Senior Business Consultant, Experian-Scorex - from the presentation given at the Experian-Scorex SM User Forum 2006

Top