Specialised Risk Management Disciplines

In the last few years risk management has moved from a silo based approach to a more enterprise wide approach which is integrated throughout an organization, at all levels, and addresses all types of risk.  As organizations move towards more mature risk management, specialized risk management disciplines are implemented to manage the more significant risk areas. 

In many organisations, the implementation if these specialised risk management disciplines is in response to various codes and regulations, such as Basel II, King III, the National Credit Act and other new and draft legislation.  In a typical ‘chicken and egg’ scenario, the success of specialised risk management and the maturity of enterprise risk management are dependent on each other.  Without a culture of risk management in an organisation advanced risk management processes may not be appreciated but on the other hand, the use of such processes and tools may increase the awareness and maturity of risk management.

Business Continuity Management - every organisation can at any time experience a serious incident that can prevent it from continuing normal business operations.

Business Continuity is defined in the British Standard 25999:2006 as a holistic management process that identifies potential threats to an organization and the impacts to business operations if those threats are realised. It also provides a framework to build resilience in the organisation. We will discuss the various requirements for the planning and development of Business Continuity and other plans and considerations for the actual management of an event should it occur.

Project Risk Management is required in organisations as projects, particularly those with a significant capital investment, may pose a potential threat to an organisation if not managed appropriately. . Project risk management assists in ensuring that project specific risks are identified and their causes determined to ensure that appropriate strategies can be planned to manage such risks.  In this part of the series, we will cover risk management activities at all stages within a project lifecycle.

Sustainability Risk Management is the effective management of environmental, social, and economic priorities in an organization. Included in King III, Sustainability is referred to as one of the most important sources of both opportunities and risks for businesses and that nature, society, and business are interconnected in complex ways that should be understood by decision-makers. In this part in the series, we will discuss the main components of Sustainability and considerations for the management of risks to an organisation’s sustainability.

Operational Risk Management is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.  We will discuss the typical components of an Operational Risk Framework which include; loss data collection, risk and control self-assessment, issues and action plans, key indicators and key risk scenarios. Operational Risk Management is particularly mature in the banking industry due to Basel II requirements, but the tools and processes that will be discussed will assist any organization in the management of their risks.

Credit Risk Management enables an organisation to optimise measures to reduce and manage their aggregated default risk and link measurement to marketing strategies through methods like risk adjusted pricing, all the while hedging positions to the organisation’s broader ERM framework and ensuring regulatory compliance requirements are met.  The key principles and factors to consider in managing credit risk will be covered in this part in the series.  This will be followed by an overview of Credit Risk Tools for the practical implementation and management of Credit Risk.

Credit Risk Tools which include quantitative calculation engines, qualitative scoring guides and credit risk management reporting systems will be profiled.  Such tools aid both the measurement and the processes to manage credit risk in an organisation.  We will discuss how the time and monetary efforts employed to create or implement a tool or system must appropriately balance the magnitude of the risks it is intended to measure.

Consumer Credit Risk Management involves understanding the risk a consumer presents to an organisation before granting that consumer any type of loan. This part of the series will give a high level overview on how to determine the associated risk and also how to set appropriate strategies for risk management and risk mitigation throughout the lifetime of a loan. It will include aspects of targeting the right customer with the right offer, selecting the customers with acceptable risk profiles in the acquisition phase, managing these customers and understanding their repayment behaviour and lastly how to effectively determine a collections strategy for each individual customer.

Market Risk Management is concerned with the monitoring and management of an organisation’s potential exposure to its portfolio value as a result of changes in market prices. The main contributors to market risks are typically equity prices, interest rates, foreign exchange levels and commodity prices.  Processes and tools for identifying and managing market risk will be detailed in this part of the series.

Liquidity Risk Management is concerned with the monitoring and measurement of current and future cash-flows, whether known, expected or unexpected, to ensure an organisation will continually be able to meet its financial obligations.  The management of liquidity is a critical factor in ensuring the ongoing survival of an organisation.

By Vanessa Payne