From the beginning of time, human ingenuity and endeavor have pushed beyond enormous barriers and difficulties towards progress and growth. Every once in a while, a catastrophic event or a major setback would deliver a death blow to the best laid plans. The inherent uncertainty underlying all attempts at a quantum leap is a major impediment to advancement of any sort.
For a few centuries now, it has been common knowledge that there is strength in numbers. Firms like Lloyds of London were pioneers in underwriting the risk of sea faring vessels, whose fortunes were at the mercy of the notorious and unpredictable high seas. Concepts of probability began to take root in order to aggregate and maximize the chances of survival and thereby enable the intrepid explorers undertake their challenging journeys. Risk Management, in its infancy was instrumental in fanning the fires of passion of the early explorers, while making their prospects palatable for their equally courageous investors.
A big leap happened with the invention of the limited liability corporation, which is an effective risk management strategy to protect the individual from descending into penury because of his business venture’s failure.
Fast forwarding to now, the world and the external environment of enterprises have become both a maze and a minefield. A single misstep could lead to complete annihilation in a matter of weeks. Risk has taken a life of its own and is now a multi headed hydra waiting to devour the organization. Market Risk, Credit Risk, Liquidity Risk, Regulatory Risk, Competitive Risk and the list goes on.
From these beginnings, the risk management competency has gone from strength to strength and has provided a protective umbrella over a huge swathe of risk taking behavior in order to keep the demons of uncertainty at bay and provide a soft landing for failure.
The hunger for expansion, progress and growth has led companies into completely uncharted territory where pretty much anything could happen. In this treacherous terrain, a well-planned, proactive and data driven risk management practices can prove to be both a guiding light and a protective shield.
The fundamental premise of risk management is that history repeats itself and aggregation almost always lends to better prediction. To make these happen, it starts with collecting the relevant data.
Collecting, organizing and then analyzing this data leads to a deep understanding of the drivers of extreme events that result in significant adversity. This then leads to superior planning and preparation that can significantly mitigate the effect of unknown risk.
Risk Scorecards, Fraud Prevention, VAR (Value at Risk) frameworks, Loss Forecasting, Reserving and Provisioning are all prudent practices that come in handy on a rainy day. The advent of the analytics discipline has brought in strength, efficiency and sharpness to the risk management paradigm.
The ability to capture, store and harness large amounts of data has brought to bear significant power in the hands of companies to understand uncertainty and leverage it for breakthrough gain. Advanced Statistics quantifies risk to an astonishing degree that enables precise estimations of risk/ reward trade-offs.
While industries that had an element of chance in their business models were the early adopters of risk management, today organizations of all hues need to get onto the bandwagon. A structured, proactive approach to managing risk that is underpinned by a strong data driven culture can place the company at an enormous advantage. The usage of analytics to optimize risk would increase the appetite to take calculated risks and engender a culture of innovation.
After all, even a leap into the abyss is best done with both eyes open, in broad daylight and with the finger always on the parachute button.
BRIDGEi2i’s endeavour is to help organizations prepare for adversity of all types and thereby embrace data driven calculated risk taking as a way of life.
To this end, BRIDGEi2i risk analytics solutions enable businesses to proactively identify risk triggers, detect potential fraud, identify potential audit issues and optimize portfolio risk. Not only does this result in better compliance with increased and tightening regulations, but it also helps reduce the chances and the severity of risk incidents.
The company’s portfolio of risk management offerings for encompasses:
Customer Risk Management where proactive systems, scorecards, strategies and processes are developed to assess and minimize customer and transactional risk.
Portfolio Risk Management, which helps proactively manage portfolio level risk and develop insightful risk strategies, and
Capital & Asset Management, which helps optimally deploy scarce capital, ensure compliance and manage for best returns.
The M-Square, our Model Monitoring platform that tracks performance of deployed models on key risk parameters in the Financial Services domain.
Forensic and Fraud Prevention Analytics, enable data driven identification of patterns in data that are early warning indicators of fraud. These also help establish robust evidence based cases during investigations.
The author, Karthikeyan Damodharan, is a Consulting Services Delivery Leader at BRIDGEi2i – A company on a mission to unleash the power of analytics and transform the lives of enterprises and individuals alike. We believe that the solutions to almost all intractable problems lies buried inside the data.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position or viewpoint of BRIDGEi2i.