Friday, March 27, 2015

Valuation Steps Part 2

A couple of days ago I published an article that mapped out the efforts required to perform a complete valuation of a new project or entity, and that article [LINK] seemed to have generated a lot of curiosity.  In this sequel to the Valuation Steps posting, we are going to take a slightly deeper look at how to identify specific the parameters which are needed to perform a Discounted Cash Flow valuation.

Wednesday, March 25, 2015

Valuation Steps

Product managers, corporate risk assessors, project managers, project financiers and many other types of business analysts often need to value uncertainty in their business strategies. In this small blog posting we take a look at the steps that would generally be followed for a typical sound valuation of 'corporate risk'.

Tuesday, March 24, 2015

Financially Evolving Big Pharma

Working with a wonderful group of industry experts at the huge Bio Pharma event in Singapore. Our presentation can be found at the end of this blog.

Wednesday, February 18, 2015

Pillar III Reports go through a makeover

The bank for International Settlements has been very busy over the last few months publishing amendments to both Basel II and Basel III, and it was only a matter of time before Pillar III was swung in for a similar maker over.

Monday, December 22, 2014

New Capital Calculations for Basel II Op Risk

It was to be expected that the proxy system for calculating Basel II operational risk capital was always dangerously simplified and consequently fraught with inaccuracies that would under or overestimate capital. A recent publication from the Bank for International settlements confirms what risk practitioners have feared for years and in this post, we take a look at the new recommendations that have been released from the Bank for International settlements.

Friday, December 19, 2014

Shape of Risk - When things break

In the first article on The Shape of Risk [LINK], we investigated why risk practitioners who simplify risk evaluations to a single point estimate will miss the shape of risk and we demonstrated this problem by comparing two very similar but independent risks side by side.

Our inaugural posting on the Shape of Risk series (I fair there might be a few chapters to come yet) attempted to keep the analysis lucid by only focusing on the comparable magnitude aspect of two risks and while the Shape of Risk part I is a nice bite size read, it leaves the frequency of a potential risk event untreated.

In this blog posting we'll address measurements around the likelihood aspect of risk accordingly and hopefully in the same straightforward manner.

Friday, December 12, 2014

The shape of risk

Risk practitioners who evaluate risk as a single number will miss the shape of uncertainty.

If risk is the effect of uncertainty on objectives, just as ISO 31000 defines it to be, we need to accept that there are many ways to describe this uncertainty.  In this short blog posting I am going to demonstrate that risk has shape and being able to dimension this shape will tell us a lot more about the underlying risks we have to manage. 

Thursday, November 20, 2014

What makes a good risk manager?

A recent debate in the G31000 risk forum [LINKon the old subject of what caused the Global Financial Crisis needs a fresh rethink in my opinion.

Tuesday, October 7, 2014

Is Risk Management a Science or an Art?

The discussion of whether Risk Management is really an art or a science has become a popular debating subject over the last few years as practitioners try to place it within a specific faculty of study.  Today we deliberate on this very subject again and on the G31000 forum [LINK].

Risk management can of course be an art or a science depending on one's point of view, taking features from both schools to become a craft.

Monday, September 29, 2014

Operational Risk Ten Stories

A decade ago, plus a couple of months, the banking community was thrown a new mandate from the Bank for International settlements titled Basel II. For the world of Basel this was the first time regulation had included operational risk as part of the capital regime program.

Ten years on, I have decided to take stock and pull together a presentation on what has worked for the banking community in operational risk management and what remains a stubborn challenge.

Sunday, September 28, 2014

Networked Risk Factors

Rieks Joosten has recently released an excellent paper and concept for assessing networked risks which has spawned on a debate for measuring such risks on the G31000 forum.

Friday, September 5, 2014

Funds Transfer Pricing Foundations

In this quick blog posting I am sharing the Funds Transfer Pricing presentation I delivered at the 7th Annual Risk and Liquidity Conference in Singapore.

Wednesday, August 6, 2014

Unraveling Extreme Value Theory

An interesting request came through from one of our customers today and is worth sharing on the Causal Capital blog because a lot of risk practitioners struggle with some of the more complex areas of modelling uncertainty. This is especially the case when risk managers are attempting to assess the size of impacts from catastrophes.

Monday, July 21, 2014

Risk Appetite In Operations

Assessing and measuring risk appetite away from an investment portfolio is perhaps one of the most difficult risk management initiatives practitioners have to entertain, it is also discussed often on risk forums and written about avidly by many consulting firms.  Yet, very few subject matter experts actually delve into the semantics required to measure risk appetite and this is kind of frustrating. I personally have plenty of clients that have expressed their sentiments around how difficult the entire risk appetite program is and many managers out there struggle to take this important aspect of risk management to completion.

In this article we release a white paper that steps through the entire process of measuring and assessing risk appetite, dealing with the numbers specifically rather than just top level summaries and catch phrases on what risk appetite is.

Monday, July 7, 2014

The Near Miss

In section 2.17 of the ISO 31000 standard, an event without consequences but an event all the same can be classified as a "near miss", "near hit" or "close call". Yesterday morning at Barcelona airport did such an event take place?

Monday, June 16, 2014

Why 5000 iterations in Monte Carlo

For those risk analysts out there using Monte Carlo in their analysis, have you ever wondered why the industry standard for simulation sample sizes in Monte Carlo is set at five thousand iterations?

So many Monte Carlo systems I see in use today run a standard five thousand simulations but why five thousand, why not ten thousand, why not five thousand and one?

How many samples should we have in our simulation sample size and when is the number of iterations insignificant?  To be concise, if you were to add another sample to your Monte Carlo simulation, when doesn't it make a difference to the result?

Saturday, June 14, 2014

Gigantic Catastrophes - Fukushima Daiichi

Recent investigative journalism has turned out some pretty horrifying developments and realizations at the Fukushima Daiichi Nuclear Facility ... The video from Vice is nothing less than deeply concerning.

Friday, June 6, 2014

What to do with KRIs? [Part 2]

So to follow up on Part 1 of our Key Risk Indicator network or system which can be found here [LINK], perhaps the most important consideration we should ponder on is what do we actually do with the KRI data we capture?

In reality, why bother tracking Key Risk Indicators if we aren't going to do anything with them?  Yet, so many risk managers do go through this very exercise without bringing it to full conclusion.

In this article I would like to describe at a top level what we can use our KRI data for and outline what holds us back from that objective.

Wednesday, June 4, 2014

What to do with KRIs? [Part 1]

Over a typical month a lot of risk practitioners in my network pose various technical questions to me. Today is no different but this month we certainly have an interesting query that goes along the following lines:
"I am creating a data model for KRIs and Op Risk Loss Events and would be curious to know how the metadata model and tables could work, how can I simulate or model Key Risk Indicators?" | US Banker
A good question without any doubt and from what I observe in general risk management practice, Key Risk Indicators are rarely modeled in coherent manner. Let's address the database design first, then we can investigate various ways in which Key Risk Indicators can be modeled. 

Thursday, May 15, 2014

Big challenges in risk

Only the other day, someone asked me what are presently the biggest challenges in risk management and while risk culture is probably always going to feature, Risk Information Technology or Risk IT has a lot of issues. When I refer to Risk IT here, this has nothing to do with computers or network connectivity but instead the analytics on these machines. Interestingly, what holds the risk community back is not the technology aspect per se but in some respects narrow mindsets. Let's take a look ...