What we do

Benefits - Revenue Improvement

Risk-based pricing

By incorporating risk measures into pricing work and tightening pricing discipline, organisations can significantly improve their margins. When used during transaction/project origination and negotiation, risk-based pricing provides an immediate analysis of key performance indicators such as economic capital, regulatory capital for financial institutions, Risk Adjusted Return on Capital (RAROC), Economic Value Added (EVA), Shareholder Value Added and Marginal Risk Contribution.

Applying appropriate risk-based pricing methodologies and tools can deliver the following key revenue improvement benefits:

  • Transaction pricing, so the returns compensate for the inherent risks of the transaction;
  • Leveraging a superior knowledge of the subtle value of pricing and portfolio analysis earns arbitrage profits and expands market share;
  • Attracting higher-quality customers, increasing the take up of offers by these customers and growing margins;
  • Improving the management of customer expectations – increasing loyalty, ring-fencing customers from competing offers, and moving away from commodity-based and low-margin products;
  • Engineering more transparent and timely customer processes – growing customer sophistication, speedier services and timely follow-up as sources of competitive leverage;
  • Improving cross-sale effectiveness and profitability.

Risk-based Performance Measurement

By incentivising business units to focus on their economic capital consumption, and higher RAROC/Economic Value Added (EVA)/Shareholder Value Added returns, it is possible to achieve a better return on the entire capital base.

Risk-based performance management enables organisations to slice and dice the information in different dimensions and levels of granularity. This gives a view of Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs) at any level of the portfolio of assets down to single transactions.

The key revenue-improving benefits of embedding risk measures into a risk-based performance measurement process include:

  • Understanding the threats to, and weaknesses of, the organisation, and identifying opportunities where investments can achieve higher returns;
  • Aligning risk appetites to capital allocation, and enhancing communication of the true potential of the organisation to analysts, investors and rating agencies;
  • Delivering an economically meaningful and consistent group-wide performance measurement framework, allowing for comparisons between profit and loss centres on a risk-adjusted basis;
  • Linking and clarifying interest rate management (funds transfer pricing) and cost allocation (activity-based costing);
  • Using and analysing information for more informed decision-making, allowing better tracking of key risk and performance indicators at all levels of a portfolio of a group of assets down to a single transaction level;
  • Creating a unified view on executing board level strategies and business plans, which incentivises business units to focus on economic capital consumption, demonstrating higher RAROC-EVA returns and performance to cost ratios on the capital base.