Risk management

Situation

Risk management is an important element of the operating model for financial institutions and other companies. It is supposed to align the institution’s actual risk profile with the risk level approved by shareholders and senior management.

A company’s risk management should not be delegated to administrative or support functions. Risk management is a fundamental part of business, because profitability — and during the financial crisis, the company’s very existence — is directly dependent on its ability to manage operational, financial and strategic risks.

The financial crisis requires a review of various positions and adjusting to the new reality of the business environment. Risk management is one of the most demanding problem areas. On the one hand, you have to reassess risks that are already accepted. On the other hand, you may also need to review your company’s overall risk appetite, since the risk level in a rapidly changing business environment may be much higher.

Measures of success

It is important that a company check whether its present risk assessment and decision-making approaches are adequate, refine them and review risks with regard to the current financial instruments portfolio in a short-term perspective.

In the long-term, the most topical issue is developing a business management strategy, which would consider risk levels, and switch from a profit-oriented business model to a risk-oriented operating model. In turn, capital allocation should be based on the risk and return ratio.

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