A quite well-known story regarding the beginning of the sub-prime financial crisis in US is that of the former CEO of Citigroup, Mr. Chuck Prince. In September, 2007, Mr. Chunk Prince asked his Chief Financial Officer about whether everything was fine regarding the financial condition of the company. The latter assured him confidently that everything was under control and he went on telling the same. However, due to some disturbances, Mr. Prince wanted to get an idea about the actual financial situation and the financial risk scenario.

Risk Management

A risk management group was appointed accordingly in order to examine the bank’s mortgage-related holdings. It brought about a completely different story about the company’s financial situation and Citigroup was forced to announce that the US Financial Giant is going on billions of dollar loss. This is an eye-opener to understand the cause of the present financial crisis. The one of the US Bank giant is going on the words of one of its top executives rather than keeping close eye on the Bank’s financial activities and through proper risk analysis. It was heard that the Chief Financial Officer and the Principal Risk Officer were close friends from very old days and so the internal Risk Management Team did not ask the hard questions which would bring out the true financial situation. The main thing is that if one in the top management keeps mum regarding the massive irregularities, there is very little chance to avoid crisis in such situation.

Lehman Brother

The same thing happened in case of the other US Bank Giant, the Lehman Brothers. CEO of Lehman Brothers, Mr. Richard Fuld gave the job of risk management to a trusted deputy, Mr. Joe Gregory, who worked more on his instinct rather than on proper analysis. A Senior Executive having huge experience in real estate business warned him about the situation going out of hand. However, Mr. Joe Gregory was insensitive to the alert and acted reluctantly on it. He paid no attention and that marked the beginning of the present financial crisis. The fact is very astonishing but very much true that Citigroup holding over USD 2 trillion of assets and Lehman Brothers holding over USD 640 billion of assets give the task of decision-making regarding risk-exposures of its huge assets to only few people who work on their instinct rather than proper analysis of the situation. The problem with these world giant financial institutions is not that they don’t have sufficient resources or talent to judge current situation effectively. However, the problem lies in the fact that they have handed over all powers of strategic decision-making on only 2/3 individuals. The life-and-death risk decisions about risk situations are taken only by one or two individuals. This fact is generating negative output for the firms in most of the cases.

Primary Thing of Proper decision

We should understand the basic problem from it. Risk Management is not anything about analyzing through fancy models or a task to be performed by the rocket scientists. It is about proper decision making. The primary thing that is needed in proper decision-making about risk situations is that the task should be taken up by a large number of persons, i.e., large number of persons should be involved in this job. The firms should run more democratically rather than autocracy and more and more people should be involved in the task of strategic decision making. This will bring more transparency about the risk and crisis situations and will enable the firm to foresee crisis much early. The fundamental of crisis avoidance remains in proper decision making and this task can be performed more accurately when the experiences of more number of people are employed into it.

Mean in this blog first understand the situations and after that take proper decision to solve the problem. Any type of decision individual, group decision and combined decision is more important, if are you working in a company .