"External operational risk data consortiums are evolving, but not all in the same direction – and significant differences of opinion remain about what consortiums should be doing. Consortiums disagree over what sort of loss events should be recorded, what information should be collected on each one, and whether data needs to be manipulated to keep it relevant to different-sized companies. And they are questioning what the fundamental purpose of external data should be – for operational risk management primarily, or for measurement and modelling as well."
Loss consortiums deal with big numbers, but that doesn't mean the concepts they deal in are necessarily complex. There are two issues in the controversy outlined in this quote. The first is that different players in an industry disagree about what needs to be measured, and how it should be measured. The second is that people are unsure of “the fundamental purpose” of data.
Let me deal with the latter issue first. There is no “fundamental purpose” to any data. Data are designed entities that provide answers to questions. Every piece of data owes its existence to a prior enquiry. The idea that data has a life independent of such enquiries is wrong. Disputes about “fundamental purpose” must, then, really be about whose form of enquiry takes precedence in the design of a data scheme.
This takes us neatly back to the first issue – the what and how of data. Now, if consortiums have differences of opinion over what information needs to be recorded, this suggests first that their business models consume and/or produce information in different ways, and second that they need to share data. (Otherwise, why would they be arguing? You hold your data, I hold mine – who would care about whether or not we were compatible?)
So, in the interests of trade, any standard needs to embrace every possible usage of a data item. Standards have to be inclusive. It makes no sense to trim standards, even though the further you get to the periphery of the standards set, the fewer users you will find. If you fail to serve the periphery, you lose trade at the core.
Think of it this way. Say we're building a shopping mall. We agree quickly that we need a parking lot and elevators. Some people in the management committee want there to be special parent-and-child parking slots. This is going to make the parking lot a little more expensive. They'd also like wider elevators, so that moms can get their double strollers in – that's going to cost a lot more.
Do you abandon this section of the customer community just because their needs are different from those of the majority? They're going to spend money in your mall. They might be the best customers your mall has.
To summarize, I say that standards bodies are well advised to take the time to be inclusive, rather than waste energy arguing about what should be excluded. I also say that data has no “fundamental purpose”. People have purposes – data has destinations.
Loss Data Consortiums