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Managing Risk with Composite Information Systems

With huge exposures, potential corporate-wide damages, and high volatility like those in contemporary financial markets, risk management is increasingly becoming a major concern among financial and non-financial firms today. This paper presents the case for the use of composite information systems in managing exposure to risks, especially in the context of financial institutions. Corporations and financial institutions face a wide variety of risks in their daily operations. The objective of risk management is to maintain the firm's exposure to these risks within acceptable bounds. In this paper, we assume that what constitutes "acceptability" has been set by management; we concentrate on what how a firm can manage its exposure by better understanding information gleaned by disparate data sources. We begin with an overview of contemporary risk management: what are the different kinds of risk and what are the sources of each kind, how companies organize themselves for risk management, what are the benefits of an information system for risk management, and requirements for such a system, and the kinds of risk management systems deployed today. I will also briefly describe the kinds of multiplesource information systems currently in use for risk management, and the trends in the vendors of these systems in merging among themselves. The balance of this paper examines the case of Salomon Brothers-how it organizes itself for risk management, the risk management systems in place, and how Salomon Brothers might use new techniques in composite information systems to better organize itself for risk management.