Risk management is often viewed as being a constraint on a commercial initiative or as a way to eliminate an enterprise's exposure to risk. In fact, the reverse is true: it should be about exploiting risk exposures for maximum return and competitive advantage on the basis that a risky business strategy and plan should always carry the highest premium prices. In other words, the challenge is to strike the right balance between risk and reward.

In practice, there is often a disconnect between strategic and operational objectives (as documented in the business plan) and performance measurement and monitoring in that: there is seldom a formally documented risk appetite; risk targets and limits are not clearly established; risk metrics are not set and monitored; and performance of individuals is not linked to the risk appetite set at a enterprise level. This means that managers cannot be sure they are taking the right risks as well as the right amount of risk compared to the risk appetite. Nor are they in a position to benchmark decisions against others in the market.

The process of measuring and monitoring risks starts with an agreement about appropriate business strategies, followed by a definition of the risk appetite Risk metrics should be agreed and communicated, and used to measure and monitor performance throughout the enterprise. In this way, risk management provides a link between business strategy and day-to-day risks.

We can help you to

• integrate strategic planning, target-setting, budgeting, forecasting, and performance management/monitoring into a single risk-based process;
• define and document risk appetite in order to provide a foundation for capital allocation, limit setting and measuring performance;
• design, build and test risk-based limit-setting systems, aligning these with the strategic planning, risk and capital planning processes; and
• develop integrated risk and financial reports that provide more reliable, transparent and meaningful business intelligence, supporting all levels in the enterprise from desk to enterprise level.

Our proprietary IRPM^TM tool provides an excellent starting point with which to define goals, gaps and implementation priorities for performance measurement and monitoring, either at enterprise, business unit level or business line level.

Case Studies

Enterprise Risk Management Diagnostic Review;

Basel II, Pillar 1 Reporting Analysis;

Risk Appetite & Enterprise Risk Management (ERM) improvement project;

Credit Transformation Programme