Specialised risk management and measurement

Specialised risk measurement and management for non financial institutions

In general, non financial institutions are encouraged to take strategic and business risk, manage financial risk, and mitigate operational risk. Financial risks are often easier to measure and manage than strategic, business and operational risk leaving risk managers with the dilemma – how do you measure and manage risk at an enterprise, business unit and business line level?

Risks are typically captured on a risk register at a business line level assessing their impact and probability. Mitigants are identified and applied to a point where the residual risk is bought within assigned risk limits. The risk registers are then consolidated at a Business Unit level. Additional risks (and mitigants) are added, assessing correlations and patterns made at both the Business Unit then Group level, to provide the “top 10” risks. These risks are then communicated to stakeholders.

In practice there are frequent disconnects between various internal processes which result in inaccuracies and inefficiencies in risk management: risk assessments are often undertaken after the business plan and budget are completed; the risk register is completed without reference to historical loss event data; the effectiveness of risk mitigants are seldom considered and thus the residual risk difficult to accurately calculate; the cost of deploying the risk mitigants is not (fully) costed and reflected in the Budget; budget variances are not tracked to the underlying cause and hence not picked up as loss events.

Reply works with its clients to improve their specialist risk measurement and management in the following ways:

  • Enterprise Risk Management – risks are collated at a group (or portfolio) level, with patterns and correlations identified to assist the Chief Risk Officer and Group risk function form an enterprise view of risk. Reply works with the Group risk function to develop and improve the risk register, being the primary tool with which risks are identified and captured. This will typically include helping to form a view over risk appetite, tolerance to risk, and risk limits.
  • Event Identification – Reply works with clients to develop an inventory of events, including correlations and patterns that would adversely impact the strategic objectives. Typically this would involve delivering a risk map. The risk map then serves as the basis of a common risk language to be used at all levels in the enterprise. In addition, escalation or threshold triggers (those triggers that alert management to areas of concern) and leading event indicators (conditions that could give rise to an event) are identified.
  • Improvement to risk quantification measures – Reply typically assists the finance and treasury function with financial risk measurement measures including: balance sheet risk, market risk and credit risk. Reply can assist develop an approach to benchmarking, probabilistic models, and non-probablistic models.
  • Improvement of qualitative risk measures – Reply recognises that: not all risks lend themselves to quantification; there is a possibility that sufficiently credible data required for quantitative assessments are not practically available; and obtaining and analysing data is not always cost effective. Reply works with clients to develop a view of the likelihood and impact of such risks. This depends largely upon the knowledge and judgement of the individuals involved and of their understanding of potential events and the surrounding context and dynamics.

Reply solutions, designed to develop, implement and embed effective risk management into an enterprise include:

  • Supporting data quality management initiatives – with respect to both internal and external data;
  • Supporting the analysis and definition of the risk appetite and related strategies for effective management, and transfer of risk to give an optimal rate of return;
  • Developing, documenting and rolling-out of standards and methodologies by which risk exposures are measured or quantified and managed in all businesses;
  • Supporting the building, calibrating and independent validation of risk models;
  • Designing and, more importantly, implementing risk models within your infrastructure (people, process, data and technology);
  • Developing an adequate monitoring framework of the portfolios of assets and related risk exposures, as well as designing and producing regular management information reports;
  • Working with you to ensure that a disciplined and harmonised approach to the management of risk is supported by adequate governance and operating model for risk modelling and validation.


Quantitative Risk Measures

Reply specialist risk modelling team can help you improve your ability to identify, measure and manage risk. Reply uses a variety of techniques relying on historical data where available, probabilistic simulation, extreme value theory and expert panelling techniques to determine likely losses (severity and frequency) incurred across a variety of risks inherent to a transaction/business.

Reply provides specialist risk measurement and management services in the following areas:


Qualitative Risk Measures

Reply works with clients to assess the probability and impact of risks that do not lend themselves to full quantitative techniques by:

  • Conducting facilitated workshops and interviews;
  • 1:2:1 interviews.



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