Page 4: Risk management
Risk occurs whenever the future outcomes of current actions are uncertain. However, knowledge of both past and current events often means that it is possible to estimate probabilities (e.g. of something going wrong) associated with most future outcomes. Where no such past evidence exists, the level of uncertainty rises. Different types of businesses operate in environments that carry widely different levels and types of risk e.g. oil companies compared with hospitals, banks compared with builders.
Financial services include lines of business that carry high levels of risk, so it is vital that techniques of risk management are applied to all key aspects, including the use of technology. With technology, there are three main risk elements:
- equipment breakdown or malfunction
- software failure or malfunction
- equipment or programme abuse or misuse.
Risk management includes assessing the:
- likelihood of mishap
- likely cost to the business of mishap
- cost to the business of reducing that risk to a given level, including zero.
Since Morgan Stanley's business depends so heavily on the successful completion of millions of transactions each week, the company feels that it must reduce the operational risk to a point where its systems virtually never go down.
In pursuit of this target, Morgan Stanley has built relationships with development companies such as Microsoft and Cisco with a view to influencing engineering and development decisions so as to ensure that products developed for capital markets have the appropriate focus and use the right technologies. The drive is towards systems that offer 'connectivity without complexity' (close interlinkage worldwide built around trouble-free technology).