Managing Risk Now Helps Leverage New Opportunities Down the Road

In a faster moving, more volatile marketplace, risk management is absolutely critical. 

Go to Wikipedia, an online encyclopedia, for a definition of Risk Management, and here’s what you’ll find:

“Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events.”

Risk management is an important and fundamental daily activity across the Farm Credit System. But never in our history has it been more important to identify and manage risk. The level of volatility, both in the global and the ag marketplace, has accelerated. Things are changing much more quickly which, in turn, means we can be negatively impacted more quickly.

At every level of our business, we need to be proactive to make sure we’re responding appropriately. In many cases, the recognition of a problem is the key first step to resolving it. In a faster moving, more volatile marketplace, the speed of identification is absolutely critical.

Currently, we have a substantial effort in enterprise risk management, taking a look at known risks but also being proactive in looking for the unexpected risks. Specifically, we’ve been sensitive to the correlation of risk between our different functional teams within AgriBank. We’re spending a lot of time analyzing risks, prioritizing those risks, making judgments in terms of future exposure, analyzing how we can manage them, and spending more time looking at the correlation between risks.

Functional areas generally do a good job of managing risk within their areas.  These risks are inherent and usually pretty well identified. However, risks that may be contributory and cross functional areas may not always be obvious. This opens the possibility for substantial exposure that may not be identified because it isn’t part of your traditional risk management focus.

Our goal is not to be surprised by exposure to losses. Risk exposure can be due to changes in our current market segments, it could be regulatory changes, or it could be the impact of the obvious global marketplace. All those things have the potential to raise the exposure to loss and risk to our organization.

We are working with risk management at several levels. We have an Enterprise Risk Management Work Group comprised of staff members. At the board level, the newly created Risk Management Committee is specifically looking at enterprise risk.

The purpose of both of them is to look at developing a systematic way to look at risk, prioritize risk, what the probability is that risk is going to be an issue, and then look at potential severity. If it does become an issue, how big of a problem is it?  By going through a whole list of potential risks and looking at probability and severity, we can distill it down to a handful of exposures that are of the highest level of concern and develop strategies to address those issues.

That is the AgriBank initiative. At the System level, I’m working on the President’s Planning Committee and Risk Management Committee, which I chair. We’re talking about how to address this broader issue. We’re looking at leveraging what individual entities may be doing, creating some synergy in terms of looking at it from a System-wide standpoint. That is critical, because some of the solutions require a broader approach than what can be addressed by AgriBank alone. We’re building a mechanism to have discussions at the System level and to share analysis.

We’ve come through some stressful situations very well, but that’s because the basic blocking and tackling is there. Sound management is being proactive and taking a leadership role. More determined enterprise risk management is a key next step to ensure that we continue to operate on a sound basis, so that we can leverage new opportunities in our business model.