Risk management is critical in the modern financial institution. Systems and processes are deployed in the hope of ensuring risk management is as efficient and accurate as possible.
Yet despite research and investment into risk calculation and modelling methodologies, turning risk data into operational information and automating processes remains a challenge.
Some issues are caused by the growing complexity of the information needing management.
However, we think that greater automation would improve responses to ad hoc queries and requests from senior management to run risk reports – which may need to be done manually.
Legislatively, Basel II has had the biggest impact on the ability of organisations to model effectively, renewing the focus on risk exposure. Institutions need to be able to accurately model and report on exposure at any time.
Banks and financial institutions have evolved over decades, deploying new technology where there is a clear and measurable benefit.
This can often lead to organisational structures arranged in disparate silos, with different teams each operating to their own ends and little formalised knowledge sharing, cross-departmental processes or reporting.
Lately, the increase in mergers and acquisitions has also exacerbated the issue of information sharing, particularly when it comes to operational intelligence targeting senior managers.
The resulting organisational matrix – across planning teams, financiers, management and regulatory units, and across the organisation’s regions – can mean up-to-date risk information needs to be manually gathered and presented before delivery as data for decision making.
Multiple emerging risk classes and regulator pressure to report and manage risk more effectively are adding up to a real challenge for financial institutions.
Could a senior risk or finance manager, faced with a business decision that must be made quickly, request the risk exposure of a single business unit in a single region, and have accurate, up-to-date details at their fingertips?
We are seeing a move beyond compliance to enterprise performance management. This makes risk management best practice more strategic.
An ability to monitor integrated risk information across the business, including timely risk alerts and controls, can offer companies a competitive edge.
Understanding the impact of risk and related profitability and cost issues while being able to act on them is vital.
Finally, informed and co-ordinated decision making which – crucially – can be done quickly in response to sales and marketing or market changes, moves the management of risk into a truly optimised offering that is aligned with business needs.
In a dynamic market, risk management is key, and access to valuable risk information from across an organisation can ensure better-informed decision making and more effective capital and business management.
Improved reporting systems can make for better company management. If all departments of an organisation are synchronised, the ability to model future scenarios, take decisions on products, and act on that information becomes a sales tool.
Laurence Trigwell is a vice president in the Cognos software financial services division at IBM
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