Enterprise risk management and the Cold War

by: Ken Agle

If you think relations between the U.S. and Russia are strained now, consider the 1980s. It was the culmination of the Cold War—an arms race between the U.S. and the USSR. Tensions were high, and there was one thing keeping everything in balance: mutually assured destruction, or MAD.

The basic premise was this: if the Soviets fired a missile at us, our early warning detection system would alert us, and we would fire missiles back at them. Both sides would likely take on heavy losses, which is why neither side wanted to fire that first shot. What preserved that tenuous peace during the era of nuclear proliferation was each nation’s detection system.

Early Warning Detection

As difficult as that period was, it provides useful guidance for financial institutions when it comes to how they can approach their enterprise risk management.

A financial institution today might consider its key risk indicators as the early warning detection system that identifies where it might run into some trouble down the road. This strategy is reactive, and is a key element of enterprise risk management that many financial institutions have in place already.

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