Risk management - Finance, Tech & Analytics Career Resources

The Essentials of Enterprise Risk Management

Posted on August 26, 2024September 1, 2025 by Imarticus Learning

Enterprise Risk Management (ERM) is a strategic methodology that allows enterprises to systematically identify, assess, manage, and monitor risks across the entire enterprise. Unlike traditional risk management processes, which often treat risks in silos, ERM embeds risk considerations into every aspect of business operations, ensuring alignment with broader business objectives. This comprehensive approach ensures that risks are managed proactively rather than reactively, enabling businesses to navigate uncertainties with greater effectiveness.

Understanding what is risk management and the importance of a cohesive risk management process is particularly vital in the investment banking sector. Investment banks operate within a highly dynamic and complex environment, facing challenges such as market volatility, regulatory changes, and global economic fluctuations.

ERM provides a structured framework to manage these risks, safeguarding the bank’s assets and maintaining operational stability. By incorporating ERM into their decision-making processes, investment banks can enhance their resilience to risks, seize opportunities, and sustain a competitive advantage in the market.

Let us now get into the specifics of enterprise risk management.

The Importance of Enterprise Risk Management

Understanding ERM is crucial for professionals in the investment banking industry because of the wide array of risks they face. These include market risk, which involves the potential for losses due to fluctuations in market prices; credit risk, associated with the possibility of a counterparty defaulting on a financial obligation; operational risk, which can arise from failures in internal processes, systems, or human errors; and regulatory risk, driven by the need to comply with stringent and constantly evolving financial regulations.

Having in-depth knowledge of ERM enables investment banking professionals to effectively anticipate, mitigate, and respond to these risks, ensuring the long-term sustainability and profitability of their institutions. Moreover, as the financial industry continues to evolve with advancements in technology and regulatory pressures, the role of ERM will become even more critical in navigating these complexities.

The Significance of Enterprise Risk Management

Before moving forward, let’s get to the most obvious question, how ERM is beneficial for the financial industry?

Here’s a brief overview:

Holistic Risk View: ERM provides organisations with a comprehensive understanding of their risk landscape, allowing them to view risks in an integrated manner rather than in silos. This holistic perspective ensures that all potential risks, whether financial, operational, or strategic, are considered and managed together, reducing the likelihood of oversight.

Enhanced Decision-Making: By embedding the risk management process into strategic decision-making, ERM helps organisations make informed decisions that consider potential downsides and opportunities. This leads to better alignment between risk appetite and business objectives, ensuring that decisions contribute to long-term success.

Improved Risk Response: ERM allows organisations to anticipate and prepare for potential risks before they materialise, leading to quicker and more effective responses. This proactive approach minimises the impact of adverse events, thereby protecting the organisation’s assets, reputation, and financial stability.

Regulatory Compliance: For industries like investment banking, where regulatory requirements are stringent, ERM ensures compliance with laws and regulations. By systematically addressing regulatory risks, organisations can avoid penalties, legal issues, and the associated reputational damage.

Increased Resilience: With ERM, organisations build resilience against unexpected disruptions. By continuously monitoring and managing risks, they are better positioned to withstand financial downturns, market volatility, and other external shocks, ensuring business continuity.

Stakeholder Confidence: Effective ERM fosters confidence among stakeholders, including investors, customers, and regulators. Demonstrating a robust risk management framework reassures stakeholders that the organisation is well-managed and capable of navigating uncertainties, which can lead to increased investment and trust.

Competitive Advantage: Organisations that excel in ERM can turn the risk management process into a competitive advantage. By identifying and exploiting opportunities that others might avoid due to perceived risks, these organisations can achieve higher returns and maintain a strong market position.

Core Components of Enterprise Risk Management

The COSO (Committee of Sponsoring Organisations of the Treadway Commission) framework outlines eight key components that guide companies in developing effective enterprise risk management practices.

Here’s a breakdown of these eight essential components:

1. Internal Environment

The internal environment refers to the corporate culture and overall atmosphere within an organisation, shaped by its employees. This environment influences how the company approaches risk, including the management’s attitude toward risk-taking and the organisation’s overall risk tolerance. While upper management or the board of directors typically sets the tone, the entire workforce’s actions reflect this environment, reinforcing the company’s risk philosophy throughout the organisation.

2. Objective Setting

As a company defines its mission, it must establish clear objectives that align with its goals and risk tolerance. For instance, if a company sets ambitious strategic objectives, it must recognise and prepare for the associated risks, both internal and external. This alignment ensures that the company’s strategies are realistic and manageable within its risk capacity, such as by hiring specialised staff to navigate regulatory challenges in new markets.

3. Event Identification

Identifying events that could significantly impact the business is crucial. These events could be positive, offering growth opportunities, or negative, potentially threatening the company’s survival. ERM emphasises the need to pinpoint key areas of vulnerability, such as operational risks (like natural disasters that disrupt business) or strategic risks (such as regulatory changes that could render a product line obsolete).

4. Risk Assessment

After identifying potential risks, the next step is to assess their likelihood and financial impact. This involves evaluating both the direct risks (e.g., a natural disaster making an office unusable) and residual risks (e.g., employees feeling unsafe returning to work). Although challenging, ERM encourages companies to quantify risks by estimating the probability of occurrence and the potential financial consequences, which aids in making informed decisions.

5. Risk Response

Companies can respond to risks in four primary ways:

Avoiding Risk: The company stops the risky activity altogether, choosing to forgo any associated benefits. For example, discontinuing a product line that poses significant risks.
Reducing Risk: The company continues the activity but takes steps to lessen the likelihood or impact of the risk. This might involve improving quality control measures to reduce product-related risks.
Sharing Risk: The company maintains the current risk profile but collaborates with a third party, like purchasing insurance, to share potential losses.
Accepting Risk: The company evaluates the risks and decides whether the potential benefits outweigh the need for mitigation. For instance, continuing operations without significant changes despite the risks.

6. Control Activities

Control activities refer to the procedures and policies a company implements to manage risks effectively. These activities are categorised into two types:

Preventative Controls: Designed to prevent undesirable events from occurring. For example, physical locks or access codes prevent unauthorised entry into secure areas.
Detective Controls: These are set up to identify when a risk has materialised, allowing for corrective action. An example is an alarm system that alerts management when unauthorised access occurs.

7. Information and Communication

Effective ERM relies on robust information systems that capture and analyse data relevant to the company’s risk profile. Continuous monitoring across all departments ensures a comprehensive understanding of risks. Sharing pertinent information with employees fosters greater engagement and adherence to risk management processes and practices, helping protect company assets.

8. Monitoring

Regular monitoring of ERM practices is essential to ensure they remain effective. This can be done through internal committees or external auditors who review current practices against established policies. This process includes gathering feedback, analysing data, and reporting any unaddressed risks to management. Given the dynamic nature of the business environment, companies must be ready to adapt their ERM strategies as needed to stay ahead of emerging risks.

What are the Types of Risk Management That ERM Addresses?

ERM provides a structured approach to identifying, assessing, and managing various types of risks, to enhance decision-making and ensure organisational resilience.

Here are the key types of risk management that ERM systems address:

Financial Risk Management: This involves managing risks related to financial losses, such as market risk, credit risk, and liquidity risk. Financial risk management aims to protect the organisation’s financial health by implementing strategies like hedging, diversification, and maintaining adequate liquidity.

Operational Risk Management: Focuses on managing risks arising from internal processes, systems, and human factors. This includes risks related to system failures, fraud, human errors, and inefficiencies. Operational risk management often involves improving internal controls, process optimisations, and employee training to mitigate these risks.

Strategic Risk Management: Addresses risks that impact the organisation’s strategic objectives and long-term goals. These include risks related to competitive pressures, market changes, and strategic decision-making. Strategic risk management involves aligning risk management practices with the organisation’s strategic planning and objectives to ensure sustained growth and competitiveness.

Compliance Risk Management: Ensures that the organisation adheres to laws, regulations, and industry standards. Non-compliance can result in legal penalties, fines, and reputational damage. This type of risk management involves monitoring regulatory changes, implementing compliance programs, and conducting audits to ensure adherence.

Reputational Risk Management: Focuses on protecting the organisation’s reputation from potential damage caused by various factors such as negative publicity, scandals, or customer dissatisfaction. Effective management includes monitoring public perception, managing stakeholder relationships, and addressing issues promptly.

Strategic and Project Risk Management: Involves identifying and managing risks associated with specific projects and strategic initiatives. This includes risks related to project execution, resource allocation, and achieving project goals. Managing these risks ensures successful project completion and alignment with strategic objectives.

Disadvantages of Enterprise Risk Management Process

While ERM offers numerous benefits, it also comes with its share of disadvantages. Here are some detailed drawbacks of the ERM process:

High Implementation Costs: Setting up an ERM framework can be expensive. It often requires significant investment in technology, consulting services, and training. Smaller organisations, in particular, may struggle with the financial burden associated with implementing a comprehensive ERM system.

Complexity and Resource Intensiveness: ERM frameworks can be complex to design and manage. They require ongoing effort to identify, assess, and monitor risks across all business units. This complexity can lead to resource strain, as it demands dedicated personnel and time, potentially diverting focus from other critical business activities.

Resistance to Change: Implementing ERM often requires changes to existing processes and corporate culture. Employees and management may resist these changes due to a lack of understanding, expertise, or perceived additional workload. This resistance can block the effectiveness of the risk management process and delay its benefits.

Potential for Overemphasis on Risk Aversion: While risk management is essential, an overemphasis on avoiding risks can lead to excessive caution. This risk aversion might stifle innovation and limit strategic opportunities. Companies may become so focused on mitigating risks that they miss out on potential growth and competitive advantages.

Inconsistent Risk Assessment: The effectiveness of ERM depends on accurate and consistent risk assessments. However, risk evaluation can be subjective and vary between different departments or risk managers. Inconsistent assessments can lead to gaps in risk coverage and undermine the overall effectiveness of the ERM process.

Data Overload: ERM systems often generate large volumes of data, which can be overwhelming. Managing and analysing this data effectively requires robust systems and expertise. Without proper data management, there is a risk of information overload, which can obscure critical insights and hinder decision-making.

False Sense of Security: While ERM aims to reduce uncertainties, it cannot eliminate all risks. Organisations might develop a false sense of security, believing that their risk management process is infallible. This overconfidence can lead to inadequate preparedness for unforeseen risks and vulnerabilities.

Risk Management vs Enterprise Risk Management

Risk management and enterprise risk management are related concepts but differ significantly in scope, approach, and implementation. Here are the key differences:

	Risk Management	Enterprise Risk Management
Scope	Typically focuses on managing specific risks related to individual projects, departments, or operations within an organisation. It deals with risks in isolation, often addressing immediate or operational risks as they arise.	Takes a holistic approach to risk management across the entire organisation. ERM integrates risk management practices into the organisation’s overall strategy and operations, aiming to address risks that could impact the organisation’s overall objectives and long-term success.
Approach	Often reactive and tactical. It deals with identified risks through specific strategies and measures. For example, managing risks related to a particular project might involve setting up contingency plans or implementing mitigation strategies	Proactive and strategic. ERM emphasises identifying potential risks before they materialise and integrating risk management into the organisation’s strategic planning. It involves setting up a framework for continuous risk assessment and management across all levels of the organisation
Integration	May operate in silos, with different departments managing their risks independently. This can lead to fragmented risk management practices and potential overlaps or gaps in risk coverage	Aims to create a unified approach to risk management by integrating risk considerations into every aspect of the organisation. ERM ensures that risk management practices are consistent and aligned with the organisation’s strategic goals
Objectives	Generally focused on mitigating specific risks to prevent negative outcomes. It often emphasises compliance, operational efficiency, and project success	Seeks to optimise the organisation’s risk-return profile by aligning risk management with the organisation’s strategic objectives. ERM aims to enhance decision-making and ensure that risk management supports the organisation’s overall mission and goals
Framework	May use various frameworks and tools specific to the type of risk being managed, such as project management tools for project risks or safety protocols for operational risks	Uses comprehensive frameworks like the COSO ERM framework or ISO 31000, which provide guidelines for managing risk across the organisation in a structured and coordinated manner

Conclusion

In the field of Investment Banking, where the stakes are high and the risk landscape is particularly intricate, a robust understanding of ERM is indispensable. The financial sector is subject to a myriad of risks, including market fluctuations, regulatory changes, and operational challenges. A comprehensive grasp of ERM principles allows investment bankers to anticipate potential threats, develop effective strategies to address them, and ensure that risk management aligns with their overarching business objectives.

Pursuing an investment banking certification course enhances one’s ability to apply ERM principles effectively. Such a course not only provides in-depth knowledge of ERM frameworks and methodologies but also equips professionals with practical skills to implement these practices in real-world scenarios.

Imarticus Learning’s Certified Investment Banking Operations Professional (CIBOP™) course has been shaping finance careers for over a decade. This course offers practical insights from industry experts, covering securities operations, wealth and asset management, financial markets, risk management, and AML.

Beyond certification, Imarticus provides a transformative experience, propelling you toward excellence in investment banking operations.

FAQs

What is risk management in Investment Banking?

Risk management in investment banking involves identifying, assessing, and mitigating financial risks to protect the bank’s assets and ensure profitability. This includes managing market risk (fluctuations in asset prices), credit risk (counterparty default), operational risk (failures in internal processes), and liquidity risk (inability to meet short-term obligations). Effective risk management ensures that the bank can navigate market volatility, regulatory requirements, and potential financial losses while maintaining stability and investor confidence.

What are the four pillars of ERM?

The four pillars of ERM are:

Strategy: Aligning risk management with the organisation’s strategic goals to ensure that risks are considered in decision-making processes.
Operations: Identifying and managing risks within daily operations to ensure efficiency and effectiveness in achieving organisational objectives.
Financial: Protecting the organisation’s financial health by managing risks related to financial transactions, investments, and capital structure.
Compliance: Ensuring adherence to laws, regulations, and internal policies to mitigate legal and regulatory risks.

What is the basic principle of the risk management process?

The basic principle of the risk management process is to identify, assess, prioritise, and mitigate risks. This involves recognising potential risks, evaluating their impact and likelihood, determining the most critical ones, and implementing strategies to minimise or manage them effectively, ensuring that the organisation can achieve its objectives while minimising potential losses.

Is the Investment Banking course tough?

The Investment Banking course can be challenging due to its intensive curriculum covering complex financial concepts, market dynamics, and risk management. It requires a strong grasp of finance, analytical skills, and commitment. However, with dedication and the right resources, you can successfully navigate the course and gain valuable expertise in the field.

Collaborating in Supply Chain Design: What are the Factors Involved?

Posted on June 19, 2023April 2, 2024 by Imarticus Learning

Step into the world of supply chain design! It’s intricate. It’s dynamic. It’s powered by collaboration and integration. These are key factors. They shape types of supply chains. Are you curious? Do you want to understand why? Let’s embark on this journey. Let’s unlock the secrets of supply chain design.

Collaboration: A Driving Force in Supply Chain Design

Collaboration is a force. It fuels the supply chain. It unites stakeholders. It connects suppliers, manufacturers, and customers. Collaboration enhances efficiency. It improves performance. It ensures smooth operations. The result? A more effective supply chain.

But how does it work? It’s about sharing. It’s about communication. It’s about common goals. When stakeholders work together, they can overcome hurdles. They can solve problems. They can meet customer needs better.

This is the power of collaboration. Collaboration fosters trust. It builds strong relationships. It enables the sharing of resources, knowledge, and ideas. This creates opportunities for innovation. It drives continuous improvement. A collaborative supply chain is a resilient supply chain. It can weather challenges. It can adapt to change.

Integration: Linking the Pieces of the Puzzle

Integration is crucial. It’s another key factor in supply chain design. It links the parts. It connects processes. It unites systems. With integration, data flows smoothly. Information is accessible. Decision-making improves.

Consider the logistics process. It involves many steps. There’s procurement. There’s warehousing. There’s transportation. The integration connects these steps. It streamlines operations. It reduces errors. It increases efficiency. Integration means leveraging technology. It means using tools like ERP ( Enterprise resource planning ) systems, IoT (The Internet of Things) devices, and cloud computing. These tools enable real-time data sharing. They improve visibility. They help to monitor and manage the supply chain. Integration fosters agility. It empowers businesses to respond to changes quickly. It ensures a competitive edge in the market.

Types of Supply Chain: Choosing the Right Design

There are many types of supply chains. Each has its benefits. Each has its challenges. The right choice depends on many factors. It depends on the business. It depends on the industry. It depends on the market.

A few examples can be –

There’s the lean supply chain. It focuses on efficiency. It aims to reduce waste.

Then there’s the agile supply chain. It values flexibility. It responds quickly to market changes.

Understanding these types is crucial. It’s a key step in successful supply chain design.

Factors of Supply Chain: Influencing Design and Performance

Many factors influence supply chain design. They shape its performance. They include demand patterns. They include product characteristics. They include business strategy. Understanding these factors is important. It helps to tailor the supply chain. It helps to meet specific business needs.

Demand patterns can be stable or volatile. They can be predictable or uncertain. Product characteristics can vary. There are perishable goods. There are durable goods. There are high-value items. Business strategies can focus on cost leadership. They can focus on differentiation. They can focus on niche markets. Each factor plays a role. Each factor influences supply chain design. By considering these factors, businesses can create a supply chain aligned with their goals. This alignment ensures success. It ensures a competitive advantage.

The key factors that influence supply chain management include:

Demand Patterns: The fluctuations in consumer demand greatly affect supply chain operations. Stable demand allows for more accurate forecasting and efficient planning, while unpredictable demand can pose challenges.

Product Lifecycle: The stage of the product in its lifecycle (introduction, growth, maturity, or decline) can impact supply chain strategies.

Product Characteristics: The nature of the product, such as its perishability, fragility, weight, or value, will influence logistics and transportation decisions.

Supplier Reliability: The dependability of suppliers plays a key role in maintaining steady product availability and managing production timelines.

Technology: The use of technology, like AI, IoT, and blockchain, can significantly enhance supply chain operations, including inventory management, demand forecasting, and logistics.

Regulations and Compliance: International trade laws, environmental regulations, and safety standards can affect various aspects of the supply chain, from sourcing to delivery.

Economic Conditions: Global and local economic trends can impact supply and demand, pricing, and overall supply chain strategy.

Geographical Scope: The physical distance between suppliers, manufacturers, and customers can impact transportation costs and timelines.

Business Strategy: The overall business strategy (cost leadership or differentiation) will influence supply chain decisions.

Risk Management: The ability to identify and mitigate potential disruptions in the supply chain is a crucial factor in maintaining operational efficiency.

Balancing the Supply Chain Design Act

Supply chain design is a balancing act. It needs collaboration. It needs integration. It needs the right type of supply chain. It needs an understanding of key factors. Together, these elements form a powerful supply chain. They enhance performance. They drive business success.

Ready to master the art of supply chain design? Take the first step with the IIT Guwahati Advanced Certification in Digital Supply Chain Management. This course will equip you with the knowledge and skills to design effective supply chains. Visit Imarticus today. Your journey to becoming a supply chain expert starts here!

Risk Management As a Career option: All you need to know!

Posted on September 21, 2021September 24, 2021 by Imarticus Learning

The world around us is more dynamic than others. With growing businesses and the economy, the world has become prone to more and more risks. However, risks increase the chances of profitability for a business. Risks if managed efficiently, can become a blessing for the company but if the risk management activities are not undertaken with caution, things can go haywire.

Therefore, it is important for anybody who manages business risks to have undergone Banking and Finance Courses after Graduation for a better understanding of the job role.

A career in Risk Management

A risk management career can be challenging and rewarding at the same time. It is considered as one of the most important jobs owing to the current situation. He plays a pivotal role in forecasting and managing business and operational risks for a company. A risk manager must be aware of the different corporate governance policies and should add value to the functioning of the organization.

The major roles taken up by a risk manager are:

He identifies risk based on his experience and his knowledge of numbers
He calculates the possible outcomes of a particular case or an activity to understand the level of risk the company is exposed to.
He is also responsible to come up with different models based on his past experiences so that any known or common risk can be prevented.
Managing the risk management team and delegating the responsibilities based on the skillset of the person.

This is not an exhaustive list. A risk manager’s job is multidimensional and has never had such significance before.

The required skillset

A risk manager must have a diverse skillset. As the job requires analysis of huge data sets, you need to have proper analytical skills to become a successful risk manager. Data interpretation and number crunching form the base of the job role; therefore, you must be good with numbers.

Also, an individual must possess critical reasoning and logical thinking abilities to become successful in the field. Apart from data crunching, an individual must also be a decision-maker who knows to take instant decisions. He must have a very strong judgment.

Other job roles in risk management

Risk management is an extensive field where different job roles can also be taken up. Risk management profiles pay very well and also provide different growth opportunities. Some of the popular job roles in risk management are as follows:

Risk advisor
Loss control specialist
Risk specialist
Financial risk controller
Risk analyst
Safety consultant
Chief risk officer

Becoming a risk manager

An individual must be a graduate before he takes up a risk management job. However, if you are only a graduate, you will be offered a less challenging role with lesser pay To build a successful career in risk management, you will have to have a strong academic hold. The job requires hard work and preparation and you should start preparing for these roles well in advance. Some of the courses that can help your cause are listed below:

Financial Risk Management: This course is very popular and a lot of risk management aspiring professionals go for this course as it provides deeper insights into the subject.
Professional Risk Management: This course is taken by professionals who are looking forward to upgrading their skillsets. It has 4 online exams module. The course can be easily completed

Risk management is an ideal job for people who have experience in finance and analytics. Also, an individual can make a strong standing career in the field as it is both challenging and well-paying.

How Do I Become a Risk Management Consultant?

Posted on November 2, 2019June 16, 2022 by Imarticus Learning

What is Risk management?

Risk management is the process of analyzing risks related to finances involved in a company. It also includes micro-managing other risks associated with any business concern which might impact the overall health of the company. The business environment is uncertain hence understanding how a business will do in the future is also uncertain. Therefore, efficient risk management also means efficient forecasting of the future results and the factors which might affect the company in multiple ways. With good management of risks, loss by the way of uncertainties can be minimized to a very large extent.
Risk management is quite challenging as the risks which have not been encountered by the company yet have to predict and strategies have to be formulated to come out of such a situation safe and sound. Therefore, these activities cannot be performed by regular individuals but by those who have an area-specific knowledge and are also well versed with the tools of predicting the unseen and managing the risks associated with it efficiently and effectively.

Who can become a risk manager?

A risk manager is someone who has in-depth knowledge of how to manage the unforeseen risks associated with any particular business. Various risk management courses are available in the market which will provide a quantitative as well as a qualitative approach of dealing with companies and helping them out in predicting the future and manage the multiple risks associated with it.
People who have the mind for analyzing the shortfalls and coming up with alternative solutions are the right people for this job. It requires both an analytical as well as a creative bent of mind to become a risk manager as it involves analyzing the problem and then coming up with various new and innovative techniques to tackle and come out of those problems.

How can someone become a risk management consultant?

Risk consultants have expertise in finance, business, analytics, mathematics and all other factors which are the primary indicators of the general health and functioning of any business entity. These professionals analyze and predict the occurrence of a mishap and come up with strategies to overcome them. Such risks include losses due to policy changes, death of a member from the higher management, loss of property, a slowdown of revenues, closure of any revenue channel, etc. Various consultants have different specialization in different sectors of the economy like healthcare, pharmaceuticals, industrial goods, commercial goods, etc.
The first step of becoming a Risk Management Consultant is to get a bachelor’s degree. Only a graduate can keep his foot forward if he has an interest in taking the path of a risk management consultant. Thereafter, the individual must go for an entry-level job which should be closely related to risk management. Usually, these individuals start as finance trainees, insurance trainees or something similar. This job will help you in understanding the basics of the corporate world hence prepping you up for your career in risk management.
With more and more exposure, trainees are made to analyze and do specific researches which in turn broadens their perspectives. The next step is to become an Associate Actuary. One can do this by gaining certification through CAS or SOA. This degree will grant a professional status to risk management consultants. To become eligible for this certification, one has to pass in a series of examinations and participate in various seminars. After the above certification, one can opt for fellowship certification. This requires you to work for another 2-3 years. Along with this, an individual will have to get himself registered with federal government agencies. After all this, the individual is all set for his career in risk management. He can operate independently or as a corporate risk management consultant.

Is Risk Management a Good Career?

Posted on September 26, 2019June 15, 2022 by Imarticus Learning

Risk management is the process of evaluating financial risks associated with a particular project or business decision taken by a particular company and then taking necessary actions to minimize such risks.

Risk management also factors in the elements of forecasting thus predicting any unfortunate incidents which may affect the company in a negative way and taking necessary measures to minimize the impact of such risks on the company’s image and profitability. It is a challenging activity as predicting future and its repercussions is not a cakewalk but at the same time, it’s exciting as it gives your brain a hard time in taking out solutions from hazy questions.

Who is it for?

Risks can be managed well by people who have a knack towards finding loopholes and problems and coming out with various alternate solutions for those problems. It is a perfect career for someone who has a creative bent of mind and who can answer all the questions a business has in financial terms.

Risk managers analyze the current situation of a company and the dynamic environment that envelops it. Then various upcoming policies and social factors are taken into consideration to check if they are helping the project in hand in any way or making it more difficult for the project to elbow its way out.

Is it a good career option?

What makes a role a good career option? The most important aspect of any career prospect is its sustainability- whether the market would need this job function in the future or not. Running a business or a company is a progressive process and people have to make long term business decisions to make things work.

Analyzing the risks which come from futuristic plans can only be done by a risk manager who has expertise in coming up with the alternatives for any unseen event. Risk managers aren’t going anywhere. The constant need for managing risks makes it an “on-demand” role.

Risk management course is different for companies belonging to different sectors as the exposure to risk in every sector is different. The automotive industry may be exposed to a higher risk at all times whereas the woolen garment industry is seasonal and thus has less risk involved than the former. So, there is no standard process of measuring risk and this poses a challenge as a risk manager along with his job will also have to keep a tap on the dynamic environment and the changing scenarios.

Most of the skills learned by the risk managers are “on the job” which might bring in a lot of internal competition but also will be a good area of skill development. To be an efficient and effective risk manager you need to know the whole business inside out- Its customers, its employees, laws that affect the company and so on.

Someone with a strong aptitude and an acumen for problem-solving would be a great fit for being a risk manager. They play the most important role in maintaining the fiscal health of a particular company. They have to use their knowledge on various financial instruments in making the best out of a risky situation hence controlling the intensity of negative impacts. If you comply with the prerequisites of being a risk manager, it is most likely that you will be satisfied with your work.

Conclusion

Every career option has its own set of challenges but you will have to overcome them to emerge victoriously. A career in risk management will keep you on toes by throwing all sorts of challenges but will also make your work dynamic and exciting.

Use of Risk Management in Investment Banking

Posted on July 3, 2017May 9, 2022 by Imarticus Learning

They way most institutions view risk management is changing. There is a fundamental shift in thought, it is not only viewed as a control mechanism but as an advisor or as a critical viewpoint, which could help in an event of a probable risk factor. Now for any banking sector risk management becomes a vital part, which will help the bank to grow, all the while keeping an eye on any potential risk factors, internal or external, for example, external like, recession, or stock market breakdown and internal like IT failure.

Currently, risk management takes two things into deliberation in the banking sector, (I) possibility of a negative impact and (II) cost of the negative impact. So basically, risk management has a very controlling role in the functioning of a bank. The bank wants to make sure that they can repay the debt in a negative scenario, so it ensures, that too much money is not taken from the client, or push the client into a liability.
Risk management becomes the nucleus of internal control of investment banks, especially in mature international markets. Investment banks buy and sell bonds, prices of these securities vary regularly if the prices go up there is a profit made and if they go down, the loss is incurred.

The trading is done on multiple types of securities across countries and markets and hence there are various risks an investment bank has to manage, one can categorise them as Macro Level, Industrial Level, Exterior Level and the Corporate Level.
Macro-level risks, known as market risks, are the most important risks in the financial market and they are unavoidable. They are generally defined as the risks of losses on and off balance sheets, primarily due to changes in the market variables. Interest rate risks, Exchange rate risks, Inflation and Fluctuation risks, all come under this umbrella. It affects the uncertainty of the profitability of securities. To manage this risk, investment banks put forward, control measures, such as making a team in market risk management, who assess the risk assessment standards and set risk limits.

System Risk Management is an industrial level risk factor, which can be explained as a chain, reaction that follows within an investment bank or within the industry. They can fuel circulation difficulty as triggered by the collapse of a single subsidiary or the business unit of the bank, an example of the menacing result of system risk was the collapse of Lehman Brothers. For the regulators and financial institution, this risk could be the single biggest threat. Banks thus need to build a secure set of flexible risk management controlled framework, combined with capital funds to mitigate the impact of this threat.

Exterior risk factors like the credit risks are generally seen when the investment bank acts as an intermediary in OTC transactions when the counterparty defaults its payment. Or if the client fails to pay the interest, or principal amount after being financed by the bank. To control this risk, investment banks, have put some control measures like scrutinising the screening process of the client and using standard exchange trading as much as possible.

There are a few Corporate level risk factors as well. Operational risks, caused by human error, program malfunction, these could have a huge impact, to control this, banks have strengthened their training and written detailed job descriptions, with cause and effect.
Liquidity Risks are also corporate level risks, caused by the investment banks fail, to not acquire a reasonable price in selling, or while assigning financial mechanisms at a lower price, due to low liquidity ratio. Usually, investment banks set low liquidity risks through hedging.

It can be concluded by saying, risk management should be applied consistently across the banking sector, where ‘Risk Experts’ who have the knowledge of banking and compliance, create policies and procedures to mitigate the risk factors.

Big Data in Risk Management

Posted on September 10, 2016May 23, 2024 by Imarticus Learning

We all know that over 90% of the world’s data has been generated only in the last two years. Forward-looking organizations, especially e-commerce, have already begun capitalizing on this gold mine. But what does the Big Data revolution mean for financial services, particularly the risk management function?
Risk management faces new demands and challenges. In response to the spate of recent financial crises, regulators are insisting on ever more detailed data and increasingly sophisticated reporting. Banks are now required to conduct regular, comprehensive bottom-up stress tests for a variety of scenarios across all major asset classes.

Put simply, Big Data represents the future of risk management. Why? Big Data technologies can help Risk teams gain better intelligence, drawn from a variety of data sources, in almost real-time. Within the financial services industry, Big Data can enable asset managers, banks and insurance companies to proactively detect potential risks, react much faster and kimore effectively, and make better decisions on the back of insights from thousands of risk variables.
Time is a critical factor in reacting to risks, and if you can react faster to dynamic risk factors, you have a competitive advantage.
Worried about fraud on the trading floor? Rather than manually track staff trading actions, data lakes enable you to retrieve an instant snapshot of an activity, including data from chat room sites, mobile phones, and swipe in/ out records. Suspicious transactions can be identified and stopped as they are happening in real time, before incurring huge fines and damaging your firm’s reputation.
Big Data Analytics has already proved its mettle within e-commerce, and will surely be a game changer for risk professionals. And don’t worry – this new technology is merely one more tool in a risk manager’s arsenal. It does not, and should not, replace the human element — Identifying what’s a signal and what’s merely noise, what you react to and what you ignore is still a judgment you need to make.
Learn more about the applications of Big Data in Risk Management in our next executive development program, which will be conducted on 21st and 22nd September in Mumbai. Click here to learn more.

Tag: Risk management