Effective Legal Risk Management For Long-Term Care Homes: Fill & Download for Free

Years ago, in the early 1980’s, a young mother I had known as a social worker for a few years since her teenagerhood, had her young child taken into care by the police via an emergency protection order. The toddler had been found home alone in the dead of winter in a cold house. He was suffering from the early effects of hypothermia and was hungry. The young mother lived at home with her own mother. She left the child in the care of the grandmother whilst she took a short-term Christmas period job in another town. She was living on the edge of poverty and precariousness.The grandmother suffered a mental breakdown whilst the mother was away and went missing, thus leaving her grandchild home alone. The neighbours heard the child’s constant cries and raised the alarm. The police obtained an emergency protection order (quite rightly) and removed him to a foster home. Upon the mother’s return home later in the week she was distraught (and angry with the grandmother) to find her child in care.There followed several interim care orders on the child, all of which were awarded by the courts without the police offering further evidence of harm by the mother - indeed, the police who obtained the order never bothered to even turn up at court - and the young mother expressed her distress and anger that her child had been put at risk by the grandmother. She visited her child very regularly. The foster parents noted her good relationship with the child.The safeguarding case conference (which didn’t include the foster carers because it was felt they had got “too emotionally involved”) recommended a care order and that the child be adopted without the mother’s consent - 3 health visitors (rather than the one representative each supplied by other agencies) attended the conference, thus skewing the vote on further action. During the discussion it was clear that there was institutional racism (the young mother was black and poor) by the health visitor manager ( “These young black mothers with poor parenting skills”).Every month the police petitioned the court to extend the interim care order without the police providing any supporting evidence of abuse or neglect by the mother. As a social worker I was stuck with a case conference decision I fundamentally and professionally disagreed with.What did I do? I gave the mother a list of 3 sets of legal aid family solicitors that I trusted (it is unethical to supply just one name) that could properly represent the interests of the child. When the next court date came up for further renewal of the interim care order, the solicitor was able to represent the best interests of the child and his mother. The child was not thriving in care and suffering from separation anxiety issues. The police had long stopped attending court to present evidence, so sure were they that their recommendation would be taken as gospel and the order renewed. The solicitor challenged the evidence, or rather pointed to the absence of it, and the police. The order was not renewed and the child was returned to his mother. I got it in the ear from my manager for not defending the absent police, but in all conscience I couldn’t - I didn’t have any evidence of abuse or neglect either. The child was abandoned by the grandmother, not the mother.The child remained with the mother and was never left in the charge of the grandmother again. The mother’s relationship with the grandmother was never the same again, trust had gone. Neither the child or the mother ever came to the attention of social services or the police ever again. The mother went to college, gained qualifications and got a permanent job, never needing to take precarious employment away from home again.I’m proud I helped that young mother and her child. I knew it was the right decision. Being a social worker is not about taking orders from above unquestionably. It involves a professional and political awareness and judgement, and standing up for the rights of others when their rights have been silenced. We are meant to be change agents, not state agents. When the state gets it wrong, it is our duty to challenge by any legal means possible.

The Best Datasets for Innovators; Senior Healthcare.We have used many of these datasets below at HomeHero | Senior Home Care so this list is definitely biased towards datasets and tools for seniors.There are incredible government projects going on now to increase Health Transparency Policies that will reshape the industry. Message me if you are involved or would like to get more involved.Elder care APIhttp://www.eldercare.gov/Eldercare.NET/Public/Site_Utilities/API_Reg/API_Registration.aspxConnects seniors with local resources such as AAOA, meals, home care, transportationHome health comparehttp://www.medicare.gov/homehealthcompare/About/What-Is-HHC.htmlServices offered by local facilities identified by zipcode (home health, PT, speech, social services, aides), quality of patient care and patient survey resultsNursing home comparehttp://www.medicare.gov/nursinghomecompare/results.html#loc=22046&lat=38.8861125&lng=-77.1772737Nursing home characteristics (staffing, deficiencies identified in inspection, quality of care measures, address)Aging Statisticshttp://www.aoa.gov/AoARoot/Aging_Statistics/index.aspxA profile of older Americans, including both narrative and statistical charts. Features a profile of elderly populations by state, including a demographic breakdown,and financial profileNational Survey of Area Agencies on Aginghttp://www.agid.acl.gov/Resources/DataSources/AAA/The Area Agencies on Aging (AAAs) survey was designed to provide basic descriptive information on AAA characteristics, health promotion and disease prevention activity, and management information systems and performance measurement. It is intended to identify areas in which AAAs play a major role in integrating, coordinating, and delivering services to those older persons in most need.State Program Reportshttp://www.agid.acl.gov/Resources/DataSources/SPR/The State Program Reports are the primary information system for states to report on the Older Americans Act (OAA) program of supportive services, nutrition, caregiver support, and other services they provide. Includes information about OAA participants, what services they receive, and what funding is expended on the program. Serves as a critical data source for measures of the performance of OAA programs.National Ombudsman Reporting System (NORS)http://www.agid.acl.gov/DataGlance/NORS/The annual reports summarize long term care ombudsman efforts on behalf of residents in long term care facilities, including information on cases, complaints, program statistics, and narrative reports. Includes info on bed counts, eldercare facility counts, as well as staff and volunteer countsMedicare Blue Buttonhttp://www.healthit.gov/patients-families/how-begin-downloading-and-using-your-health-recordsMedicare enrollees can download and use 3 years worth of Medicare claims data showing date and type of services received, address and specialty of providers, medications purchasedMU VDThttp://www.healthit.gov/providers-professionals/achieve-meaningful-use/core-measures-2/patient-ability-electronically-view-download-transmit-vdt-health-informationPatients have the ability to view online, download and transmit their health information within four business days of the information being available to the provider.National Long Term Care SurveyNational Long Term Care Survey (NLTCS) DataThe NLTCS is a nationally-representative sample both of the community and of institutionalized populations and is longitudinal in that sample persons join the survey once they reach 65 years of age and stay in the survey until they either die or are lost to follow-up. Ancillary surveys have been added to measure other characteristics of the 65 and older population, to include a Caregiver Survey to acquire data on informal caregivers themselves (done in 1989, 1999, and 2004).National Health and Aging Trends Study (must register to use data)http://www.nhats.org/In design and content, the The National Health and Aging Trends Study is intended to foster research that will guide efforts to reduce disability, maximize health and independent functioning, and enhance quality of life at older ages. Only available to academics.OpenFDAhttps://open.fda.gov/drug/event/This is the openFDA API endpoint for adverse drug events. An adverse event is submitted to the FDA to report any undesirable experience associated with the use of a drug, including serious drug side effects, product use errors, product quality problems, and therapeutic failures.Pillboxhttp://pillbox.nlm.nih.gov/developer.html#dataPillbox's API provides access to a search system designed to identify unknown pills. This system makes modifications to queries based on our knowledge of the data to provide results with greater relevancy.Drugs@FDAhttp://www.fda.gov/Drugs/InformationOnDrugs/ucm135821.htmFDA approved brand and generic prescriptions - includes patient information, labels, approval letters, reviewsNational Survey of Caregivers (Part of NHATS, must register to use data)Sensitive and Restricted Data FilesInterviews were conducted with helpers to NHATS participants who were receiving assistance with self-care, mobility, medical or household activities. The interview included questions on caregiving activities, duration and intensity, support services sought and used, effects on caregiver participation in activities including work, and demographics. Users must register and get approved for access. Only available to academic researchers.Caregiving in the USGeneral CaregivingBroad descriptive statistics that describe the caregiving population, their challenges, and demographic dataAlzheimer CaregiversCondition SpecificDescribes Alzheimers caregivers including care provided and diagnis processVeteran family caregiver resourcesAbout VAList of benefits, services and resources for family caregivers of veteransValuing the Invaluable: 2011 Update - The Growing Contributions and Costs of Family CaregivingValuing the Invaluable: 2011 Update - AARPThis report updates national and individual state estimates of the economic value of family caregiving using the most current available dataRand study of military caregivershttp://www.rand.org/health/projects/military-caregivers.htmlDescribes the magnitude of military caregiving in the US, the needs and characteristics of caregivers and the gaps in programs, policies and initiativesVA: Shared Decision Makinghttp://www.va.gov/geriatrics/guide/longtermcare/Shared_Decision_Making.aspVideos on how to perform care tasks (coordinate care, manage meds, wound care, activities of daily living)ARCH Respite Locactorhttp://archrespite.org/us-mapLocates respite services by state, age of person receivng care, conditions, provider featuresBenefits checkupBenefitsCheckUp.orgSearch tool to identify benefits available (given age/location and other personal characteristics) including food, medications, healthcare, utilitiesYouTube Videoshttps://www.youtube.com/watch?v=hbhrcSdV1scCollection of videos on caregiving , including on VA post-911 caregivingEveryday tips and checklists for caregivershttp://www.caregiver.va.gov/toolbox/toolbox_tips.aspA set of checklists and tips for caregivers of veterans addressing managing patient files and medical records, managing medications, accessing resources, what to do when the person you care for is hospitalized, etcDiagnosis care sheetsDiagnosis Care SheetsPlain language resources describing various conditions including alxheimers, PTSD, TBI, ALS, ParkinsonsNational Survey of Older Americans Act (OAA) Participantshttp://www.agid.acl.gov/Resources/DataSources/NPS/The National Survey of OAA Programs is a collection of annual national surveys of recipients of select Title III services. Their purpose is to obtain performance outcome measurement information, which is then used in AoA’s GPRA plan and PART assessment. The survey instruments focus on consumer assessment of service quality and consumer-reported outcomes. The instruments also measure special needs characteristics such as physical and social functioning of the people who receive services.AgingStats.govhttp://agingstats.gov/agingstatsdotnet/main_site/default.aspxThis report provides the latest data on aspects of the lives of older Americans and their families. It is divided into five subject areas: population, economics, health status, health risks and behaviors, and health care.NY State - Sustaining Informal Caregiverhttp://www.aging.ny.gov/ReportsAndData/CaregiverReports/InformalCaregivers/SustainingInformalCaregiversPOMPSurveyReport.pdfNew York State Caregiver Support Programs: Report FindingsBrookdale Foundationwww.brookdalefoundation.orgPublishes resources to support caregivers, such as "GrandFacts: Data, Interpretation, and Implications For Caregivers"Veterans Benefit Factsheetshttp://www.benefits.va.gov/BENEFITS/factsheets.asp#BM1Fact sheets detailing benefits and services available to veterans.LeadingAge: CAST Technology Toolkitshttp://www.leadingage.org/CAST_Reports_and_Whitepapers.aspxNational and state level reports, roadmaps and whitepapers produced by CAST.Family Caregivers Providing Complex Chronic Care to Their Spouseshttp://www.aarp.org/home-family/caregiving/info-04-2014/family-caregivers-providing-complex-chronic-care-to-spouses-AARP-ppi-health.htmlSpousal caregivers are particularly vulnerable because they are older, have lower educational levels and less income, and are less likely to be employed than nonspousal caregivers. This is the second of three reports that look into the different roles a family caregiver is in while performing complex medical/nursing tasks.Home Alone: Family Caregivers Providing Complex Chronic Carehttp://www.aarp.org/home-family/caregiving/info-10-2012/home-alone-family-caregivers-providing-complex-chronic-care.htmlThis study challenges the common perception of family caregiving as a set of personal care and household chores that most adults already do or can easily master. This report documents the rapidly expanding role of family caregivers, which has growm to include performing medical/nursing tasks of the kind and complexity once only provided in hospitals.Caregiving in the U.S. - NAC and AARPhttp://www.aarp.org/livable-communities/learn/health-wellness/info-12-2012/Caregiving-in-the-us-2009.htmlThis report emphasizes the use of the Internet for information, what public policies would support caregivers, and the use of technology in caregiving. Areas examined in the study include the prevalence of caregivers in the U.S., demographic characteristics of caregivers and care recipients, and how caregivers are affected by their role at work, at home, and in their health situation.NYC Department of the Aging - ServicesDFTA Senior Services Search PageFind caregiving services in the NYC area by zipcodeNational Center on Caregivinghttps://www.caregiver.org/Family care navigator, training, research & publicationsCaregiver Action Networkhttp://caregiveraction.org/resources/toolbox/Resources and tools for caregiversNational Alliance for Caregivinghttp://www.caregiving.org/resourcesFinancial Steps for Caregivers, and other informational resourcesNational Resource Directoryhttps://www.ebenefits.va.gov/ebenefits/nrdWhere veterans can find resources and information on benefits, education, employment, caregiving, and more.VA Caregiver Supporthttp://www.caregiver.va.gov/help_landing.aspVeterans can find support in their local area by entering their zip code. Also a support line for vets to call.Caregiver Toolboxhttp://www.caregiver.va.gov/toolbox/index.aspResources for caregivers ranging from diagnostic info to everyday tips and checklists.Caregiving Resource CenterSenior Care Resources, Assisted Living Information, and Caregiving Help and Advice - AARPInformation, tips, and tools for caregiversAARP Benefits QuicklinkNCOA's Online Screening ServiceTool that helps seniors find programs that help save money on health care, medication, food, utilities, children’s health costs and more.WISER: Women's Institute for a Secure RetirementWISER Women - CaregivingThe overwhelming majority of caregivers are females providing unpaid care for loved ones. It is especially important for these women, who often take time out of the workforces, to plan for retirement and manage finances. Use these resources to learn about caregiving and saving options for caregivers.Veterans Health LibraryMy HealtheVet Veterans Health LibrarySource for veterans health info.VA: Building Better Caregivershttp://www.va.gov/health/NewsFeatures/2013/August/Are-You-a-Caregiver-for-a-Veteran.aspFree six-week online workshop for family caregivers of Veterans.If you are taking care of a Veteran, this workshop will help you learn a variety of skills like time and stress management, healthy eating, exercise and dealing with difficult emotions.National Caregiver Training Programhttp://www.caregiver.va.gov/pdfs/Caregiver_Workbook_V3_Module_1.pdf(p 45 - 46) Legal and important documents checklist for caregiversTips for lifelong caregivinghttp://www.moaa.org/caregiver/Military Officers Association has created a web-based resource for legal issues. Helpful info on creating a budget, power of attorney, etcGuide to Longterm Carehttp://www.va.gov/GERIATRICS/Guide/LongTermCare/index.aspThe Guide provides information about long term care options – home and community based, and in residential settings. It also provides a "Shared Decision Making" approach to long term care decisions.Caregiver / Family Member Serviceshttp://www.va.gov/opa/persona/caregiver_family.aspSupport and services available for veteran caregivers.Longterm Scorecardhttp://www.longtermscorecard.org/This State Long-Term Services and Supports (LTSS) Scorecard is a multidimensional approach to measure state-level performance of LTSS systems that assist older people, adults with disabilities, and their family caregivers.Family care navigatorFamily Care NavigatorLocates government, legal and disease specific resources by stateCaregiver assessment toolsZarit Burden InterviewDescriptions and links to multiple assessment tools for caregiver burden, social support and self-efficacySo Far Away: Twenty Questions for Long-Distance Caregivershttp://www.nia.nih.gov/health/publication/so-far-away-twenty-questions-and-answers-about-long-distance-caregivingResources and answers for many issues that come up in long distance caregivingCaregivers of Veteranshttp://www.caregiving.org/research/condition-specificDescribes the roles and needs of caregivers caring for veteranseConnected caregiversNational Alliance for CaregivingDescribes how family caregivers use technology to support caregiving

When I saw this question, I think Mr. Aaron Brown’s answer would be one of the best for us to refer for. These statements below were mentioned by him on QuantNet in 2010:Unlike most fields, modern financial risk management can be traced back to a specific time and place, and a relatively small group of people. Some quants in New York City, between 1987 and 1993, codified knowledge from a variety of fields, thrashed out disagreements and created the basic foundations of risk management which remain valid to this day. Of course, much of the intellectual heavy lifting had been done before 1987, but it was not organized systematically nor known to any one person. And there has been much progress since 1993, but no shift in fundamental principles.What’s in a name?During the years of development, we discussed what to call the field. We wanted to distinguish it from fields like portfolio management and physical risk control that tried to minimize risk. We also wanted to exclude voodoo risk experts. In primitive societies, these witch doctors took credit for any good thing that happened (“the gods were pleased by your donation”) and selected victims to sacrifice after every bad thing (“that one, the one who gave nothing to the temple, has angered the gods”). They always urge conservatism, but if an innovation works out, are quick to explain they supported it all along. In modern times the words have changed, but the basic technique is the same. These descendants of shamans still vastly outnumber the people with serious and useful quantitative knowledge about risk.In the 1980s, financial institutions did not have Chief Risk Officers or risk managers. They had controllers and compliance officers and committees to set trading limits or approve credit exposures. These people made risk decisions but from the standpoint of minimizing risk subject to constraints, or the inverse problem of limiting risk and letting everyone maximize profit subject to that constraint. The one area in which professionals were actively carving out a role for managing risk was insurance. Non-financial organizations hired quantitative experts to decide what level of physical and legal risk was appropriate and which risks should be mitigated directly, which should be self-insured and which should be subject to purchased insurance policies. These experts were known as “risk managers,” emphasizing their task of optimizing rather than minimizing. Since no one was using the term in finance, we adopted it as the best simple description of what we did.Unfortunately, confusion began immediately. Too many academics ignored the professional field, and responded to the demand for papers and courses on risk management with traditional portfolio management topics. There are entire “Risk Management” textbooks out there without a word of risk management inside. Professionally, a lot of voodoo practitioners jumped on the bandwagon and adopted the title risk manager. These are the ones who stand around looking worried about everything, who discourage every risk, take credit for every success, and point fingers for every failure. They spend all their energies attempting to predict and prevent disaster.You can easily identify a real risk manager. She is cheerful and usually advises more risk. She looks for the danger in every success, and makes sure to mine the silver lining of every failure. She thinks people who predict are her enemies, they’re the ones who say, “Build the wall on the north side of town, that’s where we expect the attack.” She says instead, “I don’t care what you expect, if you leave any gap in the walls, that’s where they’ll come. Risk management is about preparing for anything that might happen, not guessing what will happen.” And she has no interest in preventing failure, which can only be done by eliminating risk. She is happiest when people fail fast, and when the organization is robust enough to survive many failures. These are the conditions that encourage the creativity and innovation required for evolutionary success, not just surviving each day.Baseball risk managementA new pitcher comes in when the team is up by six runs in the ninth inning. What does his catcher tell him? “Throw strikes.” Why? That reduces the standard deviation of the distribution of runs the other team is likely to score. It sacrifices some expected value, but with a six run lead, reducing volatility is more important than decreasing expected value. On the other team, the batter will be told to “just make contact” to “only good pitches.” He’s sacrificing expected value in order to maximize standard deviation.This is what a risk manager means by “risk,” a parameter you dial up or down to achieve a goal. It’s not good or bad, there’s no general reason to maximize or minimize it. Everyone understands this in sports. The team that’s behind tries to increase volatility of outcome: pulling the goalie in football, throwing long passes in American football, three point shots in basketball; the team that’s ahead uses opposite tactics to reduce volatility.Compare this to the “risk” of a player getting injured. This is something to be minimized, subject to constraints. The better word for this is “danger.” It is one-sided, if you have a sudden change of health while playing football, it’s unlikely to be a positive one. Also, it’s measured in different units than other decision. We can’t answer, “How many points is a broken collarbone worth?” or even, “How many broken fingers are as bad as one broken leg?”The complement on the good side is an “opportunity.” Consider the chance of a pitcher getting a no-hitter. This is considered so valuable, that a manager will leave a tiring pitcher in the game, increasing the risk of loss, rather than deprive him of the opportunity to complete a no-hitter. It is also one-sided and measured in different units than everyday decisions.Risk managers must deal with dangers and opportunities, even though we typically have no particular wisdom to offer. The basic rules are simple. Decisions about dangers should be pushed down to the lowest level possible. If a company truck driver dies in an accident, you don’t want it to be because the Global Head of Maintenance decided to reduce the frequency of brake inspections, or the CFO increased the number of miles each driver had to log each month in order to earn a bonus. People near the danger are in the best position to assess things, and they accept dangers when they have control over the level. Since dangers cannot be quantified, they cannot be aggregated and balanced against money, so they cannot be managed from the top. There is also the advantage that if the person who dies is also the person responsible, one fewer living person has to feel guilty or get sued.Opportunities, in contrast, should be spread as broadly as possible. Opportunity does not diminish by being shared. A pitcher is happy for pitching a no-hitter, his team is happy, the fans are happy, everyone wins. Although big corporation are usually portrayed at being indifferent to dangers, I think the more common corporate sin is to neglect opportunities.Risk mangers must learn to distinguish dangers and opportunities from risks to make sure each is handled in the appropriate fashion. Treating a risk like a danger is cowardice. Treating a risk like an opportunity is irresponsible. Treating either a danger or an opportunity like a risk is inhuman. An essential skill for any risk manager is to recognize risk and manage it, wherever it resides, and to refuse to manage dangers and opportunities, relegating each to its proper level.Baseball portfolio managementWhere is our portfolio manager in all of this? She is also concerned about something properly called “risk,” but in a different way. In baseball, the pitching coach operates as a portfolio manager. She considers all of a pitcher’s pitches and locations and determines an optimal mix. She wouldn’t just use the pitcher’s best pitch, in the sense of the one with the best expected value of outcome. If the batters are sure which pitch is coming, it will be ineffective. On the other hand, she won’t mix the pitches uniformly, she wants to concentrate on the best pitches. She wants high expected value pitches, but she wants diversification as well. So she’ll come up with the best combination, the best portfolio, the mix of pitches that produces the best overall outcome.To demonstrate the difference between the portfolio manager and the risk manager, the portfolio manager thinks strikes are the high-risk pitches. A strike is likely to result in extreme outcomes, outs or hits, even home runs. A curve off the inside corner will probably be either mildly good, the batter swings and misses, or mildly bad, the batter takes a ball and maybe walks. But the catcher, acting as risk manager, called for a strike when he wanted to minimize volatility.Both are correct. The portfolio manager is correct that a fastball down the middle has a high volatility of outcome for the single pitch, the risk manager is correct that it leads to a lower volatility of game outcome. A team making outs and hits can easily score one or two runs, but it’s very difficult to put together a sequence that makes six runs. A team taking balls and walking has a hard time scoring a run, but only a slightly harder time scoring six runs.Academic economists have trouble with this distinction because they think of both problems as being part of a complex optimization problem. A “portfolio” of pitches determines the probability distribution of outcomes for a single pitch. The game situation determines the “utility” of each outcome, in terms of effect on the chance of winning the game. It is a portfolio management problem to optimize the probability distribution of pitches for any game situation, which in turn determines the probability distribution of outcomes, in order to maximize expected utility.Professional specialtiesI have objections to that formulation, but they’re not my topic for today. I’m going to argue only that portfolio and risk management have evolved as separate professional specialties, with separate intellectual traditions and methods. It is certainly possible for one person to do both, but in my experience even these people make the two decisions separately. People who try to do the combined optimization fail.Modern portfolio management goes back to Harry Markowitz. In 1950, sitting in the University of Chicago library, he wondered why investors don’t put all their money in the one stock they expect to have the highest return. He realized that you could do better by buying a portfolio of stocks with a higher ratio of expected return to standard deviation of return (later named “Sharpe ratio” if you subtract financing costs from the expected return). You get the weights for the portfolio with the best Sharpe ratio by multiplying the vector of expected returns by the inverse of the covariance matrix. Although he didn’t have either the data or the computer power to do the calculation, his seminal insight created the field of portfolio management.Notice that for Markowitz, risk is something bad, something to be minimized. People came up for various justifications for that. Utility theory in economics argued that people with concave utility functions prefer less risk. Some economists claimed people do have concave utility functions, others that people should have concave utility functions and others that the people with convex utility functions don’t matter because they can get all the risk they want free by betting with each other. Behavioral psychologists argued that losses make people feel bad more than gains make them feel good. Practitioners tended to emphasize that risk made planning difficult, and also that it hard to measure manager skill. Mathematicians pointed out that at the same arithmetic average return, the higher the standard deviation, the lower the terminal wealth.I think all those reasons are silly, but that’s another topic for another day. The point is none of them matter. Nobody knows enough about expected returns or covariances to maximize Sharpe ratio. All Markowitz needed was a constraint to force diversification. What people do in practice is either to make some assumptions about expected returns and covariances that force a solution, or balance portfolios according to entirely different principles. The basic insights of portfolio management are brilliantly illustrated by the toy example of working with known parameters to maximize Sharpe ratio, but nobody ever did it.Around the time Markowitz was arguing with Milton Friedman about whether or not this work justified a PhD in Economics, John Kelly was at Bell Labs, thinking about the problem that launched modern risk management. Suppose you knew the true probability of a horse winning a race, and it was higher than the betting odds implied. How much should you bet? Kelly realized there was a rule guaranteed to do better in the long run than any essentially different strategy.Rather than explain Kelly’s derivation (which is well worth reading) I prefer to break the idea down into three simple sub-ideas to separate the math from the model. Suppose you will be offered a series N bets at some payout ratio R (that is, for each dollar you bet you receive $R if you win and pay $1 if you lose), and you know you will win exactly K of them. You can bet a constant fraction of your wealth each time, between -1 and 1, how much should it be? Elementary calculus shows the answer is [K – (N – K) / R] / N. Risk has nothing to do with this, you always do best this way. For the same reason, utility functions have nothing to do with it. With more complicated bets the wealth proportion does not have a simple closed-form solution, but it’s always easy to compute.Why restrict the strategies to constant proportions of wealth? It makes the end result independent of the order in which the wins and losses occur. And why assume you know how many times you will win? Because in the long run, results tend toward expected values. So these two assumptions are equivalent to a situation in which you know the probability of winning, there will be a very long series of bets and the bets are independent. Note that these will not hold exactly in practice, they are a model of reality rather than mathematical truth. But the basic Kelly insight can be generalized to finite sequences of dependent bets and uncertainty about probability distributions.When Harry met JohnMarkowitz taught us how to think about relative allocations among simultaneous dependent bets in order to maximize a utility function. Kelly taught us how to think about absolute risk amounts over sequential independent bets, without reference to utility. Together these define unique investment amounts for each asset. Markowitz’s key ratio is excess return divided by standard deviation (Sharpe ratio), Kelly’s is excess return divided by variance. Note that these have different dimensionality. Sharpe ratio depends on time horizon, but not on bet size; Kelly ratio depends on bet size, but not on time horizon.In practice, investment decisions do not fall neatly into Markowitz or Kelly idealizations. We live in a finite period world, not one period nor infinite periods. Everything depends on both size and time horizon. So portfolio managers and risk managers cannot inhabit separate silos, they must often confer to make good joint decisions. But there are reasons to separate the decisions as well. Portfolio management is highly multidimensional and data-dependent, it is forced to be at least partly parametric. Risk management is low-dimensional and uses much less data, it relies on non-parametric methods. The most important question for a portfolio manager is expected return, the most important question for a risk manager is worst-case return. While it’s possible for one person to do both, the fields are so different that it usually makes sense to separate the jobs.This is the vision of risk management that was hashed out from 1987 to 1993, along with specific mathematical tools for implementation. The initial problem was how to set the optimal position risk for a trading desk. There were three major starting points. I was in the “value” camp which held the key measure was daily P&L, ignoring trades done during the day, in normal markets. The “capital” camp focused on the economic resources necessary to support a level of risk-taking, and the “earnings” camp modeled the effect on earnings. This was a bottom-up movement of traders and other financial risk-takers trying to run their own businesses better.Around 1990, some large financial institutions got concerned about several different businesses unknowingly making the same bet. The top executives wanted reports to aggregate risk throughout the institution. “Value” was the only candidate for a measure, because P&L was the only thing that was defined consistently and controlled in all businesses, and it was the only one available daily. However, we value people tended to use complex metrics that could not be easily aggregated. The only simple metric was the one capital people used. They worried about how much capital was “at risk,” in the sense of how much you could lose at a level of probability equal to the default probability of bonds of a certain credit rating (knowing that allowed you to compute the market cost of your capital). Thus Value-at-Risk (VaR) was born, a name that makes no sense except historically.There are no voodoo VaR’sEvery year, a few thousand people discover that VaR is not a measure of risk. They always seem to think they are the first people to notice that. You don’t get good portfolios by maximizing expected return subject to a VaR constraint, and you don’t encourage good risk management by setting VaR limits nor holding capital based on a multiple of VaR. Although people have done all of these things, they are abuses of VaR based on taking a risk management concept and interpreting it as a portfolio management one. You also can’t compute VaR parametrically or by historical simulation. What people call parametric VaR and historical simulation VaR can be useful numbers to know, but they are not VaR’s.VaR is defined by a backtest. You publish a number every day, including days when your systems are messed up or there are reconciliation problems among positions. You never restate the number afterwards, all that matters is the number you published for decisions. You test how many days of normal markets had losses from beginning-of-day positions that were larger than your published VaR. That should equal the VaR confidence level, within statistical error, and your VaR breaks should be independent in time and also independent of the level of VaR. There are no voodoo VaR’s. In fact, you should be willing to bet on future VaR breaks at the odds implied by the confidence level (and any quant who managed trading desk risk in the early 90s did exactly that).It turns out to be remarkably hard to produce a VaR with a solid backtest, which taught us that we really didn’t understand our center risk. You have to understand the center before you can begin to have useful opinion about the tails. When you put a real VaR together, you discover that having robust approximations for missing or incorrect data, and for systems problems, is considerably harder than modeling market movements or pricing positions (yet I interview people with graduate degrees in Risk Management who cannot define a relational database or tell me what a controller does). Your world is quite different from the portfolio managers.Another difference between risk managers and portfolio managers, is risk managers worry when VaR is too low. VaR is the region in which you have plenty of data, the region in which you people, systems and models are well tested. Outside VaR you little idea what will happen. Risk within VaR limits is never a concern, it diversifies away too quickly to matter (what does matter a lot is the portfolio manager’s focus, what expected return value it is varying around).Once you know your VaR, you know the region of risk. You investigate this with a number of tools, including stress tests and scenario analyses. But you never attach probability estimates to these, so they are irrelevant to a portfolio manager. One point of these exercises is to develop contingency plans to deal with each. Of course, the disasters that do happen will never resemble any of your tests. A key principle of risk management is the hope that preparing for the bad things you can foresee will give you the knowledge and discipline to react to the bad things that actually happen.It is sometimes said that all the value of risk management is the experience gained by producing a VaR and working through stress scenarios. There’s some truth to that, but only some. The quantitative goal of risk management is to use the stress scenario analysis to set worst cases for performance, which can be used to construct Kelly-like optimal risk levels. Left to their own devices, portfolio managers are apt to take risk up too much during times of low volatility, wait too long to cut after volatility and losses, then cut too much and wait far too long to take risk back up again. All of these things are good for maximizing long-term Sharpe ratio, but bad for making sure you survive long enough to realize anything long-term. And conditional on survival, long-term Sharpe ratio is a poor objective function both in the sense that it’s difficult to control and that it is unrelated to how well off either the manager and the investor is.Someday, this will all be in a textbook: how the modern field of financial risk management developed, what practicing financial risk managers actually do, and what knowledge and skills you need to help in the professional effort and advance the state of the art. Someday, students will be taught that risk “management” does not mean “constrained minimization of” risk, and that “risks” are distinct from “dangers” and “opportunities.” Someday, John Kelly (and Ed Thorp who developed Kelly’s ideas for risk management) will have more space in risk management textbooks than Harry Markowitz or William Sharpe. Until then, you’ll have to rely on your quantitative skills to figure it out for yourself.Credited to:Aaron BrownAaron C. Brown (born November 27, 1956) is an American finance practitioner, well known as an author on risk management and gambling-related issues. He also speaks frequently at professional and academic conferences. He was Chief Risk Manager at AQR Capital Management. He was one of the original developers of value at risk and one of its strongest proponents