Finance
How to evaluate future risk, right now
Published by Jessica Weisman-Pitts
Posted on October 11, 2022
5 min readLast updated: February 3, 2026
Global Banking and Finance Review
Company
Published by Jessica Weisman-Pitts
Posted on October 11, 2022
5 min readLast updated: February 3, 2026
By Danny Baker, Vice President, Market Strategy at Fiserv
Financial institutions face a myriad of risks each day. From data breaches to financial crimes like identity theft, money laundering and fraud, many of these risks have headline-making potential and their prevention garners significant time and attention.
Other types of risk, however, may be easy to downplay in comparison.
The strategies and tactics organizations use to navigate uncertain waters present their own risks. And paddling hard in the wrong direction can be even tougher to overcome than other risks financial institutions are managing.
Is your strategy “the right one?” Can it be executed? Financial institutions can reap significant benefits from investing time and attention in answering these questions.
The psychology of survival
There’s no such thing as bad weather, only unsuitable clothing, the saying goes. So, how much gear does one need to wade through waters churned by today’s economic, political, cultural, and demographic shifts?
The rate and magnitude of change has pushed many into survival mode. Unfortunately, people’s natural crisis responses aren’t always the best. When faced with a threat, the most common psychological responses are denial and inaction.
Human instinct is to deny a crisis is occurring and fall back on learned behaviors, even if they’re not a fit for the current circumstance. People do things the way they’ve always been done in order to ride out the storm, rather than investing any time or resources evaluating alternate solutions.
Businesses get stuck in denial, too
These psychological responses to crises occur in business, too. This is problematic since “good” strategic responses need to be framed in current facts. If our business mindset gets stuck in denial or we rely too much on history, we risk taking the wrong action – or no action at all.
Fortunately, people (and organizations) can be trained to deal with uncertainty and disaster. Survival professionals like first responders and pilots cope better than the average person because they plan, prepare and act before an event strikes. They use trusted and true information about the current situation but aren’t constrained by past experiences. And they account for potential circumstances, not just scenarios they’ve seen before.
This is exactly what regulators want financial institutions to do, too. Regulators want to see how financial institutions are defining and executing strategies and mitigating risks. They’re looking for some assurance that strategies are viable before they’re executed.
Are they expecting financial institutions to see into the future? No. But regulators want evidence that financial institutions have walked their strategies through multiple scenarios and stress tests and are prepared for a number of possible realities.
Seeing the future vs. recalling the past
Financial institutions are overflowing with data … data ponds, data lakes, and in some organizations, data oceans. It’s a massive undertaking to organize the information into a meaningful state.
It takes so much time and effort to document the historical record that some organizations get stuck in the past. But if they rely on hindsight alone, they miss the right decisions moving forward. To make optimal decisions, financial institutions need to combine three views of their data: hindsight, insight and foresight.
“What ifs” are just as important as “what was.” Financial institutions need to be able to visualize the future and see and solve risks before they become unsolvable.
That means having the right tools to model and test future business scenarios. And not as a one-time exercise, but often, quickly and iteratively. When financial institutions can mix and match realities (e.g., rates, demand, contracts, macroeconomic factors), they can create strategies and tactics to thrive through any circumstance.
How to look ahead
From my experience, the number one attribute of high-performing financial institutions is a forward-looking discipline. These organizations:
The majority of these strategic imperatives are knowledge-based. Top-performing institutions know their core competencies, performance drivers, accountholders, results and risks. The information feeding decisions is “good,” meaning it’s accurate, timely, transparent and distributed. Data is pulled from the right sources and applied in the right ways: to describe, predict and prescribe.
Good data management and analytics practices lay the groundwork for advanced and mature decision-making. Together, they support an efficient, effective and agile decision-making and management process.
Overcome denial and inaction
Financial institutions need good data to make decisions – but they don’t need all of it. Data only realizes its full value when it’s used effectively. In the current environment, forecasting, modeling and analytics capabilities are invaluable.
Most organizations rely on limited data intelligence. Dashboards might tell you something’s wrong or heading in a bad direction – but that’s it. It’s like a fire alarm. A warning, but without any information about the impact or the right way out. That makes it easy for organizations to deny or avoid action, even if disaster is coming.
Financial institutions need data that informs action. They need tools to project performance based on the status quo, plus ways to model assumptions about future conditions before they choose a strategic direction. When organizations make decisions with foresight, they know what to expect (and why).
Agility and iteration are also critical. Organizations need to keep looking forward, wondering about the future, and experimenting with new realities. Otherwise, they can get stuck in the past – or worse, in denial.
Risk is normal
Every business and financial institution is managing risk every day. Navigating change and managing risk is your charge. With the right foundation, you can create resilient and responsive strategies under any circumstances – with greater confidence.
There’s no crystal ball to guide you. But strategy doesn’t have to be based on guesswork, either. If you invest in a forward-looking discipline and good data and analytics practices, you can manifest your future. The wind and the waves are always on the side of the ablest navigator.
Risk management is the process of identifying, assessing, and controlling threats to an organization's capital and earnings. It involves analyzing potential risks and implementing strategies to mitigate them.
Financial institutions are organizations that provide financial services, such as banks, credit unions, insurance companies, and investment firms. They play a crucial role in the economy by facilitating transactions and managing risks.
Data analytics is the science of analyzing raw data to make conclusions about that information. In finance, it helps institutions make informed decisions based on historical and predictive data.
Strategic planning is the process of defining an organization's direction and making decisions on allocating resources to pursue this strategy. It involves setting goals and determining actions to achieve them.
Financial crime refers to illegal acts committed for financial gain, including fraud, money laundering, and embezzlement. It poses significant risks to financial institutions and the economy.
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