Beyond Enterprise Risk Management

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Beyond Enterprise Risk Management

• ORAMSS A Curtain Raiser

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Risk Management

• Mission
• Provide a transparent and objective risk
  management standard to enhance opportunities for
  our customers, enabling them to enhance
  stakeholders value, as well as reduce
  risk-exposure to the public.

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Risk Management

• Financial Institutions are moving into an era in
  which complex mathematical models programmed into
  risk engines will provide the foundation of
  portfolio management.
• Risk Management of the future demands a
  sophisticated risk engine that is able to
  analyze, measure mitigate the risks of
  sophisticated products, compute and implement
  complex marketing hedging strategies, and
  understand the relative risk-adjusted return
  almost instantaneously.

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Risk Management

• The Internet and intranet have become the
  delivery vehicles of choice for the results of
  risk analyses.
• An Internet based risk engine with mobile
  communication and analytical capabilities,
  capable of providing objective and transparent
  risk analysis as well as risk handling strategies
  from the bottom to the top of the enterprise will
  become a necessity for all enterprises.

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Risk Management

• Further benefits of this type of infrastructure
  are
• consistency one source for all answers
• efficiency data entered once serve multiple
  purposes
• ease of use one place, one view and 7x24
  availability.
• A benchmark standard acceptable to Financial
  Institutions (FIs) which is followed by their
  customers. A more predictable less risky customer
  base.

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Risk Management

• It is just not enough to simply measure known
  risks FIs need to ensure continually that in
  future extreme risks in volatile markets are
  properly disclosed, made transparent, and most
  difficult of all understood, and instantly made
  available to decision makers.
• In the near future risk management function will
  be fully independent from line business
  management and be centralized at a corporate
  level. There will be more detailed and more
  frequent reporting by Chief Risk Officers to
  management, creditors and stakeholders.

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Risk Management

• Companies that manage on a consistent basis all
  of the risks to which they are exposed can expect
  to deliver reduced volatility and enhanced
  profitability (FTSE 500 survey of UK).
• Transparent and objective Risk Management
  improves amongst others, brand value, reputation,
  customer loyalty and has an overall positive
  impact on corporate image, profitability and
  share prices (MMC).

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Risk Management

• Intelligent Risk Management Engine Improved
  Business Management Improved Profitability
• This enables FIs to raise and lend money with
  more confidence and their customer enterprises to
  raise more money.
• Enterprise Risk Management (ERM) helps companies
  respond holistically to hazard, financial,
  strategic, and operational risks. Ninety percent
  of companies with an ERM program report that they
  are very confident in managing their risks,
  compared with only 45 percent of those without
  such a program MMC.

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Risk Management

• The Move towards ERM solutions appears to be
  widespread and enduring, Bob Khanna, President
  and CEO of MMC Enterprise Risk.

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Risk Management
Causes for stock drops - Fortune 1000 group
Risk Event Precipitating Stock Drop ( of
Companies)
of top 100
Manage-ment ineffective- ness
Competitive Pressure
Mis-aligned Products
Loss of Key Customer
RD Delays
Foreign Macro-Economic Issues
Interest Rate Fluct-uation
High Input Comm-odity Price
Law-suits
Natural Disasters
Cost Overruns
Customer Pricing Pressure
Supplier Problems
Customer Demand Shortfall
Regulatory Problems
MA Integration Problems
Accounting irregularities
Supply Chain Issues
Strategic
Operational
Financial
Hazard
58
31
6
0
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Risk Management

• ERM systems that have the ability to measure and
  quantify the broadest range of risks will enable
  management to more accurately predict the
  positive and or negative impact on stakeholder
  value including share price.
• If this is done by an objective, self-learning
  predictive leading technology application, there
  is less chance of any accusation of fraud or
  misrepresentation, thus providing a safety net
  and enanhancing compliance with new Corporate
  Governance Standard (e.g. Sarbanes Oxley)

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Risk Management

• Once these industry-wide ERM standards are put in
  place, clients will turn to their FIs for a
  total off-the-shelf risk management solution. The
  easiest way to accomplish this is to be first to
  impose a unified, acceptable ERM Standard on
  their clients.
• There is, therefore, a need to have one benchmark
  ERM application, which will allow FIs to conduct
  risk based due diligence and monitor risk
  handling by their clients .

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Risk Management
Historically the implementation of ERM has been
done on a company-by-company basis with no
Industry Standard in place. An example of and ERM
deployment by Internet or Intranet is depicted
below (Risk Management by Crouhy, Galai Mark)
INDEPENDENT MARKET STATISTICS AND PRICING
Standard Components with Consistent Content
MARKET RATES DABABASE
Business partners and international customers
obtain access to risk data and analytics via the
Intranet/ Internet
BUSINESS POSITION TRANSACTION DETAILS
RISK DABABASE

• ANALYTICS
• Market risk calculator
• Credit risk calculator
• Operational Risk calculator
• Capital usage calculator

CUSTOMER DABABASE
ISSUER DETAILS AND RATINGS
If customers risk management standards laid down
by the Financial Institutions (FIs) can be
integrated with adequate filters with FIs
standards funding becomes easier.
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Risk Management

• However, Gausa believes there is a better model.
  One which not only warehouses and analyzes data,
  but also learns.

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Risk Management

• ORAMSS - Overall Risk Analysis and Management
  Software System.
• The self learning fully integrated Enterprise
  Risk Management standard for Risk Diagnosis and
  Management which
• uniformly and consistently identifies all risks
  that effect the enterprise
• measures risks in terms of likelihood and
  consequences
• assesses risks objectively in relation to the
  organizations goals
• Improves future performance and cost management
  by learning from past experiences, thereby
  minimizing reinventing the wheel inefficiencies
• helps managers to easily collaborate and make
  informed decisions and
• measures performance, monitors results and
  transparently communicates with stakeholders.

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Risk Management

• ORAMSS will contain a mechanism for data capture
  and risk analysis - which will in turn yield a
  set of ERM Best Practices.
• ORAMSS is designed as complementary Application
  seamlessly integrating with existing system which
  will allow Financial Institutions to ensure
• Brokers, Investment Bankers and others follow ERM
  Best Practices
• Clients follow ERM Best Practices within their
  operations
• Provide operational reporting consistently and
  diligently
• Monitor and prompt to ensure timely mitigation of
  risks or maximization of opportunity .
• In other words FIs can drive ERM Best Practices
  on themselves and their clients uniformly,
  raising the confidence level of their
  stakeholders, and vastly improve risk decision
  making by their management.

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Risk Management

• ORAMSS Architecture
• Process oriented n-tier architecture.
• Orchestration of business processes to client
  applications.
• Domain expertise through intelligent learning
  libraries.
• Business and analytical processes using Business
  Process Management.

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Risk Management
Value Proposition
Savings on expensive executive time

• Schedule route plans to minimize impact of
  risks ability to hedge project risks fast
  reaction to unexpected events end-to-end
  information flow.
• Reduction of rework management of project
  revisions
• Intelligent and collaborative workflow improved
  performance and communications across enterprise.
• Real time availability of vast enterprise
  knowledge base.
• Effective collaboration and workflow integration
  with financial institutions, insurance companies.

Reduced physical data flow
Bottom Line Value
Improved speed, accuracy of risk analysis and
performance
Reduced administration costs
Reduced deputation of onsite Experts

• Optimized routing and tracking of risks
  monitoring and management of risks based on vast
  and varied enterprise experience pool.
• Better control of risks and resources and cost
  effectiveness.
• Retention and reusability of acquired/sourced
  expertise.

Improved Return on Investment
Asset Value
Enhanced Client Management