Prebuilt Crisis Risk Infrastructure
Build the risk system before a crisis, then accelerate its operating tempo
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 5
- Confidence
- 95%
The framework treats crisis readiness as standing organizational infrastructure rather than an improvised response. Leaders establish regular risk meetings, exposure reporting, escalation routes, and scenario-analysis habits during normal conditions. When disruption begins, they preserve the same people, information flows, and decision structure but compress the operating cadence from weekly to several times per day. Teams examine direct exposures, anticipate how market or operational changes could alter those exposures, and prepare actions before the next decision window opens. This avoids wasting scarce crisis time creating reporting systems or clarifying responsibilities. Its output is a continuously updated picture of risk, a set of plausible scenarios, and a coordinated menu of responses that can be executed quickly.
Origin
Extracted from Masters in Business during Kelly Coffee's account of JP Morgan's risk response during the 2008 financial crisis.
Core principles
- 01Build response capacity before disruption occurs
- 02Reuse familiar systems under pressure
- 03Shorten reporting cycles as uncertainty rises
- 04Model second-order effects, not only immediate events
- 05Keep decision-makers continuously informed
How to run it
- 1
Build the standing risk system
Create recurring risk meetings, standard exposure reports, named decision owners, and clear escalation routes while conditions are stable.
Pro tip Use the same reporting definitions across teams so information can be consolidated quickly.
Watch out A crisis is too late to invent the organization’s basic risk language and responsibilities.
- 2
Map direct and indirect exposure
Identify current positions, collateral, counterparties, operational dependencies, and the external variables capable of changing them.
Pro tip Ask what each initial event could cause next, not merely what it changes immediately.
Watch out Direct exposure alone can conceal larger second-order consequences.
- 3
Run actionable scenarios
Model plausible developments and determine what trades, funding moves, staffing changes, or client communications each scenario would require.
Pro tip Concentrate on scenarios that could require action at the next opening or decision deadline.
Watch out An unbounded decision tree becomes unmanageable and can delay action.
- 4
Compress the operating cadence
As risk rises, increase meetings and reporting from the normal schedule to multiple updates per day while preserving the familiar structure.
Pro tip Change the frequency rather than replacing a system people already know.
Watch out Faster meetings are useless if information cannot travel rapidly both upward and downward.
- 5
Maintain execution readiness
Keep responsible teams available, update assumptions continuously, and prepare to approve or reject consequential actions as events unfold.
Pro tip Pair each scenario with a specific owner and trigger for action.
Watch out Awareness without delegated authority can still produce paralysis.
In the wild
During the weekend when Lehman Brothers failed, JP Morgan examined collateral relationships and considered how market movements would affect its derivatives positions. The team identified trades that might be necessary when markets reopened and repeatedly updated its scenarios as events developed.
→ Decision-makers entered the market opening with a clearer view of exposures and possible required actions.
JP Morgan already held regular weekly risk meetings before the financial crisis. During the crisis, it retained that infrastructure but increased the cadence to four or five meetings per day, allowing information to move rapidly around the global organization.
→ The bank could react quickly without first building a new crisis-management process.
Common mistakes
Raising the army after war begins
Waiting for disruption before establishing roles, reports, and meeting routines consumes the time needed for decisions and execution.
Stopping at first-order effects
Teams may understand the immediate event while missing how it changes markets, counterparties, or dependent positions.
Modeling every imaginable branch
Scenario analysis becomes unusable when teams expand the decision tree without prioritizing events that could require near-term action.
Is it for you?
Best for
It is best for institutions and leadership teams managing complex operations where crises can propagate through multiple dependencies.
Not ideal for
It is not ideal for isolated, low-impact decisions that do not justify permanent risk infrastructure.
From the transcript
“you don't you don't declare war and then raise your army. You get your army first”
“you were just constantly running scenarios to make sure we were ready for that.”
“we had risk meetings that we were doing that were this regular weekly meetings all the time, and during the crisis, what we did is…”
From the episode
Interview With Kelly Coffey: Masters in Business (Audio)