Ready to take the data challenge?
According to new research from The Economist, effective data management is now a boardroom-level discussion
For years, board members could safely regard data as an operational issue requiring little discussion. This is no longer the case. The financial crisis exposed the shortcomings of data in a large number of institutions and highlighted the need to pay greater attention to this valuable asset.
Over the past three years, research conducted by the Economist Intelligence Unit (EIU) on behalf of SAS has consistently highlighted data as a barrier to effective risk management for many financial institutions. In the most recent survey, just 39 percent of respondents believed that their organizations were effective at collecting, standardizing and storing risk data.1 Respondents also considered insufficient data among the top three shortcomings preventing more effective risk management.
Why has data been elevated to a boardroom discussion? For one thing, key stakeholders want assurances that boards are providing robust oversight and making well-informed decisions based on solid data. For another, data enables institutions to respond quickly and effectively to crisis. In the hours leading to Lehman Brothers' collapse in 2008, some institutions were unable to calculate their aggregate exposures to Lehman and its subsidiaries in a timely manner because data was distributed inconsistently across multiple divisions, and even when it could be gathered, the data had to be aggregated so that overall exposures could be measured.
In addition, regulatory changes are forcing boards to focus on data issues. In the US, for example, an important theme of the Dodd-Frank legislation is an assessment of risk exposure across the entire financial system. One aspect of this new regulatory intervention is likely to be a greater requirement for financial institutions to make risk exposure data available. In combination, these trends are encouraging a broad review of the board's role and responsibilities toward data. There is a growing realization that data should be viewed as an asset with fundamental strategic importance.
The data officer-in-chief
"One way in which boards can gain a better understanding of data issues is to create a chief data officer (CDO) role," says Sam Harris, Director of Enterprise Risk Management at Teradata. "The CDO has responsibility for managing data as a strategic asset and ensuring the quality of the data that's being used or presented."
In 2006, Citigroup became one of the first major financial institutions to name a CDO. "The leadership of the company recognized that data is not only important for good decision making, but also that we need to have much more integrity around how the data is created, stored, analyzed, and who is using what," says Jennifer Courant, a Managing Director for Risk Architecture at Citi in the US. "Creating the chief data officer role was one response to those challenges."
Just as a chief risk officer helps the board understand the technical aspects of risk management, the chief data officer has a similar educational role. "The CDO has an obligation to train the board on issues of the firm's data quality and processes so that they can understand the metrics and decide whether something requires more attention," says Harris.
Asking the right questions
Anne Milley, Senior Director of Analytics Strategy for JMP Product Marketing at SAS, points to the quality improvement processes applied by manufacturers and says that financial institutions should think of their data in the same way.
"You need to manage data as though it is something that is produced, and then you can apply quality improvement concepts to the data collection and management processes," says Milley. "There's no single measure of data quality, but taken in combination, these metrics can provide an indication of the level of confidence boards should have in the inputs to their decision making."
It also helps to think of a supply chain for data: a series of component disciplines comprising the life cycle of information as it passes through the institution. This begins with acquisition and runs through processing, maintenance, distribution and consumption. Another way boards can gain confidence in the data is to examine it from various dimensions. For example, request the same information from multiple sources – risk and finance, say. "And if you're getting a consistent response from both sides of the organization, then that tends to be a strong proxy for good quality data," says Courant.
The view from the top
Bio: David Rogers is the Global Product Marketing Manager for Risk at SAS.
This story appears in the Second Quarter 2011 issue of