Risk is present in all businesses. The ability to identify the potential cause of a risk event occurring and take corrective action is critical to the risk management of a business or any operating entity. The cause of a risk is typically the result of the presence of a risk condition which is a weakness in the conduct or management of a business activity that can precipitate the occurrence of a risk event. For each operating unit and business activity of an organization, as part of its risk management oversight, there should be a set of indicators that will help identify risk conditions in the organization. These indicators are called “Risk Metrics”. There are a number of generic risk metrics that typically apply to all business activities and then there are others that apply to a specific business activity. Risk metrics should consider all types of risk which would include: market risk, credit risk operating risk, technology risk, fiduciary risk, client relationship risk, legal/regulatory risk, guideline observance risk. Once a risk metric identifies a risk condition, it is then the responsibility of business management, together with its risk management and Compliance units, to undertake corrective action to address the condition. This risk identification and corrective action process will eliminate or reduce the potential of a risk event occurring.
The US business environment as well as those of other counties have experienced significant risk events with substantial risk consequences over the years. In recent times there have been a considerable number of risk episodes. To the extent the risk conditions that caused a risk episode to occur could have been identified and immediate corrective action taken, the risk event may have been prevented or modified. Sound risk management practices together with a set of effective risk metrics could have possibly avoided or modified many of the risk episodes that were experienced. This presentation allows the participants to reflect on the concept of risk metrics, to provide a blueprint for creating a set of risk metrics and to be given a large sampling of risk metrics that are employable. It is intended that the risk metrics displayed would help participants consider the generic risk metrics that would apply to their business as well as being helpful in considering risk metrics that could be used in their specific activities. This presentation is designed to help the formulation of a specific aspect of an organization’s risk management and should prove to be a helpful as a continued learning experience for individuals with responsibility for overseeing risk, for managing the risk environment and for providing risk education. Lastly, it provides an actual case study that will establish how a major risk event could have been avoided, or modified, if Risk Metrics had been effectively employed.