Enterprise-wide Risk Management Special Report

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What Price Paradise?

To many risk managers, paradise looks a bit like this: You have a single risk management platform that supports every conceivable risk measure or activity across the entire business, allowing you to calculate and manage your potential risk exposure to a huge degree of granularity across asset classes, business units, geographies, counterparties, and even individual traders or portfolio managers at any given time around the clock.

The numbers this all-singing all-dancing paradise risk platform produces are as reliable as they are consistent, allowing risk managers and front-office staff to optimize their business decisions, secure in the knowledge that they are utilizing the organization's financial resources to the fullest extent without inadvertently exposing it to any unnecessary risk. Oh, and this system is data agnostic and has the constitution of an ox, which means it can consume, pro-cess, digest and regurgitate huge data quantities and varieties from across the capital markets spectrum as a matter of course.

The problem with paradise, though, is that it's out of reach for many capital market firms. In this context, paradise comes with an eye-watering price tag and a tendency to turn what appear to be fairly rudimentary projects at the outset into multi-year operational and technology quagmires, responsible for swallowing entire budgets year after year, while also stunting, or in some cases even terminating, careers. 

But the above scenario is still an ideal toward which all capital markets firms ought to work. Sure, some will feel that their risk framework is sufficiently robust to adequately underpin the type of business they conduct, although those firms are in an ever-increasing minority, as asset owners, institutional investors and regulators are now less inclined than ever to turn a blind eye or give a provider the benefit of the doubt when they discover or even suspect risk management inadequacies.

Consequently, capital markets firms have little option but to start moving in an enterprise-wide risk management direction, irrespective of where they currently sit on that continuum. It's a journey not for the fainthearted, but with careful planning, numerous deliverables can be enjoyed along the way to the benefit of the wider organization. While the destination might seem unattainable, it's important to remember that much of its value is derived from the journey.

Victor Anderson

Editor-in-Chief, Waters 

 Click here to download a pdf of this special report