Is a Pandemic Scenario Just a Recession Scenario?



Recently, I wrote about how a pandemic might be a useful scenario to have for scenario analysis. As I thought about how I might design such a scenario I considered: should I assume a global recession for the pandemic scenario?

A pandemic, by definition, is an outbreak of a disease that affects people around the globe. Therefore, it is reasonable to think that it would slow the flow of goods and services through the world. Repercussions would be felt everywhere – from businesses reliant on tourism and travel to companies dependent on products manufactured in countries hit the hardest.

For an initial pass, using a recession seems sensible. However, I believe this “shortcut” omits a key trait needed for scenario development: creativity.

The best scenarios, I find, come from brainstorming sessions. These sessions allow challenges to be made to status quo and preconceptions. They also help identify risk and opportunity.

To immediately consider a recession scenario as “the pandemic scenario,” then, might not be advantageous in the long run.

As an exercise, I challenged myself to come up with questions that aren’t immediately answered when assuming a generic recession. Some that I asked were:

  • How do customers use my business? Do they need to be physically present to purchase my goods or use my services?
  • How will my business be impacted if my employees are not able to come into work?
  • What will happen to my business if there is a temporary shortage of a product I need? What will happen if there is a drawn-out shortage?
  • How dependent is my business on goods and services provided by other countries? Do these countries have processes in place to contain or slow down the spread of the disease?
  • Does my business reside in a region of the country that makes it more susceptible to the impact of a pandemic (e.g., ports, major airports, large manufacturing)?
  • How are my products and services used by other countries?
  • How can my company use technology to mitigate the impacts of a pandemic?
  • Is there a difference in the impact to my company if the pandemic is slow moving versus fast moving?

These are just a few of the many questions to consider for this analysis. Ultimately, the choice of whether to use a recession or not rests with the scenario development committee. To make the most informed decision, I would urge the committee to make questions like these a part of the discussion rather than taking the “shortcut” approach.

Jonathan Leonardelli, FRM, Director of Business Analytics for FRG, leads the group responsible for model development, data science, documentation, testing, and training. He has over 15 years’ experience in the area of financial risk.


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Do You Have a Pandemic Scenario?



A recent white paper I wrote discussed the benefits of scenario analysis. The purpose of scenario analysis is to see how economic, environmental, political, and technological change can impact a company’s business. The recent outbreak of COVID-19 (“Coronavirus”) is a perfect example of how an environmental event can have an impact on the local and, as we are finding out, global economy.

As the world watches this virus spread, I suspect there are some companies who are thankful they created a pandemic scenario. Right now, they are probably preparing to take steps to enact the procedures they created after running the scenario. I also suspect there are other companies who might be in a bit of panic as they wonder how much this will impact them. To those companies I suggest they start considering the impacts now. While we hope this will not reach full pandemic level, the future is unknown.

 

Jonathan Leonardelli, FRM, Director of Business Analytics for FRG, leads the group responsible for model development, data science, documentation, testing, and training. He has over 15 years’ experience in the area of financial risk.

The Financial Risk Group Is Now FRG

We’re making it official: After more than a decade of operating as “The Financial Risk Group,” we’re changing our name to reflect what our clients have called us since the early days. We are excited to formally debut our streamlined “FRG” brand and logo.

Our new look is a natural progression from where we started 14 years ago, when the three founding partners of this company set a lofty goal. We wanted to become the premier risk management consulting company. It seemed ambitious, considering we were operating out of Ron Holanek’s basement at the time, but we knew we had at least two things going for us: a solid business plan and a drive to do whatever it took to deliver success for our clients.

And look at us now. It would take a while to list everything we’ve accomplished over the last decade plus, but here’s a quick run down of some of the items we’ve crossed off the company bucket list since 2006.

  • We’ve grown our numbers from the original three to more than 50 talented risk consultants, analysts, and developers.
  • We moved out of the basement (it would have been a tight fit, considering). We settled in historic downtown Cary in 2008, but quickly spilled out of our main office there and into several satellite locations. In 2018 we bought an older building a few blocks away and renovated it to a gleaming modern office hub for our US headquarters.
  • We opened offices in Toronto, Canada and Kuala Lumpur, Malaysia, to better serve our clients around the world.
  • We opened several new business units, expanding on our original core focus of delivering automated technology solutions. Adding dedicated Data and Risk, Business Analytics, and Platform Hosting teams enlarged our wheelhouse, so that we have experts that can walk our clients through the entire lifecycle of risk management programs. (Shameless plug: you can learn more about a number of them via a series of videos that are sprinkled throughout the website). We now also work with institutional investors on innovative models and product offerings to help streamline processes and drive excess returns.
  • We formalized our NEET (New Employee Excellence Training) apprenticeship program, so we can nurture and enhance the specific blend of skills that risk management professionals need to solve real-world business challenges. The program has struck a chord with our clients, so we built a program to recruit and develop risk management talent for them, as well.

Obviously, we couldn’t have done any of this without continued trust and support from our clients. Our clientele represents a cross section of the world’s largest banking, capital markets, insurance, energy and commodity firms – stretching across continents and across industries – and we recognize that they’re some very smart people. When they talk, we listen, and what they have been saying for a few years now is that the brand we started with in 2006 should evolve with the evolution of the company.

It is natural for people to streamline words into acronyms.  In our industry, there are many, and knowing them is very important to our job.  Our clients, partners, and even our internal teams used FRG from day one, but now is the time to make it official.  By rebranding and fully embracing the FRG name, we hope that it, too, becomes a well-known acronym in the risk management space, one that people equate with integrity and quality of work.

So we’re celebrating 2020 with the new name, a new look, and a new logo. But it’s like they say. The more things change, the more they stay the same. That’s why you can be sure that our core values, our core principle – to fulfill our clients’ needs, while surpassing their expectations – still guide us every day. We are our reputation. We are FRG.

Mike Forno is a Partner and Senior Director of Sales with FRG.

 

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