Risk Management no longer does what it says on the tin

There has been a trend recently that suggests Risk Management no longer does what it says on the tin; so much so that nowadays it appears risk management and optimisation drive business decisions even less than accounting, as identified in my earlier comment (http://energyandcommoditiesnews.blogspot.com/2009/09/without-risk-taking-there-is-no-banking.html).

Over the last year in particular, Risk Managers have become more like Risk Controllers (to bash the trader) and Risk Reporters (more for regulatory reasons rather than business reasons). The days that good risk management was a tool to help the business make positive contributions rather than just limit innovation may now be part of history. Good risk analysis, information and advice can improve performance, help traders use their risk capital more efficiently and highlight scenarios that their position is exposed to; it is also reasonable to expect that new profit opportunities will be identified as a consequence.

Risk Managers, whether they are the trader as the first line of risk management, an independent group or both, need to spend more time looking forward at how risk can impact and change performance rather than looking back.

The timeliness of this information is also important and more often than not it is almost a day behind, by the time it has been usefully interpreted! Providing the data for analysis and reporting the results of standard metrics can often be outsourced and provided in a timely manner for interpretation. This requires a different skill set to the real expertise of understanding what risk can do and how to utilise it in order to benefit the business.

Let’s look forward to the days when highly skilled and experienced Risk Managers start thinking about managing risk again, rather than spending their time preparing cushions of reports at ridiculous levels of confidence, precision and complexity.


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