July 14, 2009
Risk Career Series - 7 Traits & Habits for a Risk Management Career - Part 1
I am starting this blog series in response to many requests for career advice and guidance that we all keep getting from time to time from young bright aspirants! Also when i started my blog i listed the below 10 Risk mgmt frontiers ideas, so next few blogs are going to be adressing the ideas not addressed so far.
1. Risk Visualization
2. Next Generation Risk & Compliance Architectures
3. Risk Pricing Clusters
4. Risk & Compliance Taxonomy
5. Pan Regional Risk Data Grids
6. Digital Assets Mgmt
7. Cross Industry Risk mgmt practices
8. Incubating Centers of Risk Mgmt Excellence & practices
9. Risk Management Career Options
10. Embedding Risk Mgmt & Compliance in an organisational DNA
My thanks and sincere apologies to all of you who took time to write to me. To some I have responded already and I really wish I could respond to all of you individually on your interest to work in the Risk Mgmt area, but a more efficient way to respond would be via this PRMIA blog.
Let me start by saying to all the young & old, inquisitive, brilliant minds out there, we need more of you in this dynamic and exciting profession. So please do keep flocking to the Risk profession.
This is not a one off blog. I will keep posting regularly on this topic regularly. I also hope that this blog topic will evolve into a Risk Mgmt Career thread with lot of questions, and inputs from the more seasoned Risk mgmt gurus and experts from the industry, so we all get a much wider perspective on entry in the Risk mgmt profession. Perhaps we can evolve into an annual PRMIA Global Risk Mgmt Career webcast.
Being involved in the selection process of the PRM candidate of the year for the last 2 years and looking at the caliber of candidates, it seems a logical extension of developing the Risk mgmt profession.
Note: Certainly do not consider my thoughts as absolute truth as they are colored by my limited personal experiences. Do take them with a pinch of salt and beware of the extra mix of continental and asian spices thrown in.
Having been fortunate enough to have lived and worked in 6 countries so far and delivered Risk projects in more than 10 countries, I see that young aspirants to Risk Mgmt industry have the same issues and questions world over. Let me try to answer some of them from a financial services industry perspective first. And will color them with examples from other industry sectors that I know of;
Q1: What does it take to be in Risk Management field ?
Response: There are 7 traits and habits that I see that consistently define a Risk Mgmt professional. This may be embodied in many other similar profession but I find these specially enhanced in top notch Risk professionals. These is just a listing of a few characteristics. It’s brilliant to have all these qualities, but one does need to have a combination of at least 4-5 skills.
1. Intellectual curiousity & Rigor of thought - Risk Management is about being intellectually curious (or being a busy body as they say in South East Asia) about what, where, when, how and who.
2. Constant and Dynamic Changes - Be able to deal with a dynamically changing environment that one works in
3. Good grounding in at least two or more disciplines - Math, Finance, Stats, Financial Engineering, Quant Finance, IT
4. Constantly Learning- If one does not believe in continuous learning, this area is not for him/her as one will find it hard to keep up with the pace of change
5. Detail oriented - At more junior level, have interest to drill down into details when required. Risk management is about details; As one goes sr. the details evolve into bigger picture but still need to detailed oriented many times.
6. Tech savy - Be it Microsoft Excel, Visual C++, Visual Basic, Microsoft ACCESS, and be able to learn different Risk applications and technology.
7. Being able to break down complex concepts into simple terms, communicate and explain clearly
Having listed the above, I must also highlight the fact that Risk Mgmt being a very vast discipline, the above skills are by no means exhaustive.
Let me stop here and continue on in my next blog. Pls. do write in your comments, questions directly on this blog, instead of individual emails. Happy Risk mgmt job hunting.
Posted by spachava at 08:33 PM
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May 19, 2009
Should IT be the second line of defense for Operational Risk function?
As companies gear up to handle the ever increasing risk management and regulatory enviroment, a key aspect in recent times has been emergence of the Operational Risk and the role of IT in the implementation of the op risk initiatives.
With operational Risk broadly defined as risk of losses arising from faliure of systems, processes and people, I often wonder if this is an area that CIO office has a much bigger and strategic role to play especially in organisations whose business model derives its competitive advantage from IT.
Although i guess the CIO office hardly has any bandwidth to pick up this key area. but I see this as a naturall convergence in future given the role of IT in Risk and compliance execution and effective implementation.
In various discussions I have had with leading companies, many proactive CIO's and their directs seem to have a much better handle on the operational risk aspects, actually even better than the business lines themselves. This could be as CIO really has to step back and take a big picture view of the business and priorities. As the focus in Operational risk discipline is really towards making the front line operational staff in the business the first line of defense, IT processes start to become key.
I always made the distinction between IT compliance and business complince but i am beginning to come around to the concept that perhaps the second or 3rd line of defense should be the IT deptt. as well. Which means that IT starts to become a strategic partner in managing operational risk along with the traditional technology risk they have always managed. I will share more on this going forward but welcome any thoughts around this.
Posted by spachava at 04:53 PM
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January 17, 2009
GRM- Global Risk Mgmt and Governments Risk Mgmt with a $5 trillion plus kitty
Wishing everyone a happy and safe new year!
2008 was a humbling and disruptive year for the Financial sector, specially the bulge bracket Investment Banks as well as Risk Management profession on the whole. Many epitaphs will be written for legendary institutions that disappeared overnight and will be spoken about for decades to come in terms of the crunching global impact and the associated learnings. About $650bn of sub-prime bonds outstanding in March 2008, about 75% of them being rated triple A at issuance, and banks raised around $600 billion in 2008 worldwide to survive. This blog sets the context to a global development with wider and long term implications for the Risk Management role and function of the Governments and Sovereign Wealth funds.
GRM - Global Risk Management or Governments Risk Management
With FDIC chair floating the Aggregator bank idea this morning, there is a fascinating convergence of free markets and role of Governments as Risk Managers of last resort. There is an ongoing global risk management effort that although coordinated in some parts (e.g. G7, EU) and disparate in other parts of the world, does show signs of an orchestrated and coordinated effort. The different measures listed below really being the tactical components of a broader and longer term Governments Risk Management effort to rescue firms and economies -
1.Unprecedented direct intervention by Govt. bodies and regulators like FDIC in overnight in takeover/shotgun sales of financial institutions
2.Unprecedented but time bound Governments pledge to guarantee all loans and deposits
3.Bailouts plans such as US TARP
4.Stimulus packages
5.Benchmark rates cut
6.Assumption of toxic securities
7.Equity stake and nationalization in extreme cases
8.Interbank and debt guarantees
9.Recapitalization
10.Asset Restructuring body/Aggregator bank
Today, it is very rare to hear debates on the role of direct government intervention even in the strongest bastions of free market economies. In the past it had been very subtle support and interventions by Sovereign Wealth funds (SWF), but never of the current scale.
Below is a summary of the global risk management efforts of governments of some of the major developed and emerging economies around the world.
USA - $ 850bn (6% of GDP) - $ 700bn TARP; $300bn guarantees, FedReserve rate cut to 1%, $1.3 trillion bank lending, $150bn stimulus package, ($ 500bn planned by new govt)
China - $586bn (16% of GDP) – 2 yr stimulus comprising rural infrastructure, social services, railroads, airports, health, education, housing & more
UK - $ 450bn (21% of GDP) - $311bn to exchange illiquid securities for govt. debt, $116bn to recapitalize, $389bn guaranteed new bank debt, $23bn tax breaks
Russia -$ 209bn (12% of GDP) - $ $50bn credit line for Corp debt refinance, $88bn bank loans,$19bn stock market support
Germany -$ 151b( 7% of GDP) - $101bn in new capital, $25bn bad loans cover, $504bn interbank guarantees,$25bn tax breaks
South Korea - $ 80bn (9% of GDP) - $25bn stimulus, $55bn forex loans for exporters, $100bn guarantees for banks forex liquidity
Japan - $ 68bn (1%of GDP) -2 stimulus packages incl. tax cuts, tax breaks, credit guarantees,$322bn loan guarantees for small & midsize businesses
France - $ 50bn (2% of GDP) - $13bn to recapitalize($37bn more pledged), $403bn interbank guarantees
India -$ 41b(5% of GDP) - $ $4bn loans to mutual funds, $37bn in bank loans due to reserves rate cuts
Summary: The GRM program around the world is committing to around $5 trillion plus with amounts committed being anywhere from 1% of GDP to a high of 21% of GDP in UK. Many countries GRM initiative includes nationalizing failed financial institutions as well. So the GRM is a facet of Risk Management that will remain in forefront for years to come and CRO’s
Takeaways –
1.An additional dimension for CRO to deal with, if their institution is subject to GRM activities
2.Lessons learnt from GRM will feed into a heavier touch for Regulators in industry Risk mgmt
3.The lessons learnt by governments around the world in rescuing” Too big to fail” firms will have an impact on the future viability and ambitions of the “financial supermarts” around the world.
4.This GRM effort will have far reaching impact on the Risk Management role of governments and implicitly the role of Risk Management in society.
Sources: Dow Jones Financial News, Issue 635,A year in numbers; Business Week Dec 1 2008(Peter Coy, Enough Shock treatment)
Posted by spachava at 05:26 PM
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June 11, 2008
PRMIA Global ERM benchmark survey results Key data points
PRMIA recently released the results of its global survey on “ ERM - A Status check on global best practices.” This survey is meant to benchmark the current and future state of ERM practices around the world. The results point to the emergence of ERM as a key component of current and future business processes.
This survey was conducted in 103 countries across risk practitioners, regulators responsible for ERM, consultants and/or vendors working in ERM and members in other related professional roles. The respondents were from firms that were amongst the largest in the respective countries as well as from mid tier and smaller firms as well.
I choose to only highlight some of the key data points of the survey rather than the whole results, to encourage more to sign up as sustaining members to be able to access the full survey results and benefit from such value added offerings from PRMIA.
Broadly the survey covered the following aspects - ERM program and methodology, Success factors in ERM rollout and implementation, Reporting structure, staffing, Costs, and relation to economic capital.
Overall, 90% respondents confirmed that ERM is very much a part of their current or future business process, with 41% confirming that their organization has a well-defined ERM program, 49% are in various stages of development. There are still 10 % of respondents whose firms are not engaged on ERM, which means still lot of work cut out for Risk mgmt deptt.
A fair majority of firms have adopted or will adopt internally developed ERM frameworks and methodology. In my opinion most would of these would still map quite closely to established standard frameworks in some areas.
Amongst the type of risks, business strategy risk was cited as the key risk opinion rankings, followed closely by credit, market and operational risks, although when asked to rank risks quantitatively, business strategy fell to fourth place.
Reporting structure is always a key indicator of how important the Risk management function is in an organization. Consistent with this, on the reporting structure question, over 80% of respondents opined that the Chief Risk Officer ought to report directly to the Board.
With respect to ERM implementation and adoption, training and top-down support were cited as the most critical factors for a successful ERM program. The other factors were ease of use and familiarity with ERM tools. For most risks not currently captured by the ERM process, the vast majority were on schedule for implementation within the next two years. Over 70% cited "industry best practices" as the goal of their ERM program; most of the rest targeted "above regulatory minimums" in various degrees.
On average, participant companies are allocating about 3-3.5% of operational costs to their ERM programs, but identify 4.5-5% as what is needed for a successful and meaningful ongoing program. 75% of participants used their ERM risk measurements in the setting of target capital for their firms.
From a holistic ERM requirements perspective, 34% thought that Basel II (CRD) could be more easily fulfilled with a sound ERM program in place, whereas 22% chose the Sarbanes-Oxley Act. 30% of respondents from AMERICA opted for the Sarbanes-Oxley Act as opposed to 18% from EMEA & 19% from APAC.
PRMIA chapters around the world also hosted a series of global events to discuss these ERM survey results. In Seattle we hosted a roundtable to share and validate the global ERM data points. The interactive session facilitated ably by Co-RD Seth Shapiro stimulated some animated and interesting insights from a cross section of Risk practitioners from various industry sectors on their perspectives on the state of ERM. Especially of interest were the implementation and adoption. related findings.
The ERM survey results along with the industry roundtable insights provided a good validation of some of the common issues that I personally have seen during implementation of ERM initiatives and blueprints, for example in the area of ease of use, familiarity of ERM tools and ERM as part of everyday workflows and business processes.
The success of any global study or survey depends on the quality and scale of participation, so let me end by thanking all of you who participated in this survey. Also a big thanks to Robert Reitano, Professor of Finance, Brandeis University, International Business School for his contributions to the PRMIA survey content. Last but not the least a sincere word of thanks for the PRMIA secretariat team of Kattie Gittins, Cheryl Bucks, David Millar, Janet Tritch, Christina Severson and others from PRMIA team who worked tirelessly to support this and all the other global event efforts.
Happy reading everybody !
Posted by spachava at 10:51 PM
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