Course dates
A review of the current state of risk management
- Update on the current crisis sweeping the globe
- Did risk management fail and if it did, why?
- Current initiatives (Basel III, Solvency II) that impact all financial and non-financial organizations
The structure of risk management
- Probability and uncertainty
- Risk appetite and the volatility of cash flows
- Corporate governance – The role of the Board of Directors and Management
The strategic plan – the basis for ERM
- Defining ERM within the strategic plan
- Defining strategic goals and the linkage to risk management
- Key Risk Indicators (KRI’s)
The universe of risk - definitions within the categories
- Systemic risk: Country risk, Political risk
- Organization specific risk: Operational risk, Market risk, Credit risk
- Identifying the activities that cause the risk. A balance sheet and income statement approach
- The use of risk management tools
Measuring return against risk
- Risk Adjusted Return on Assets (RARoC)
- Economic Value Added (EVA)
Course Background
The extensive efforts that have gone into building ERM frameworks over the last several years appears to have been ineffective in dealing with the current global crisis. Industry after industry and country after country appear to have been unable to manage the risks they faced which has led to a significant reshaping of the financial world.
This program will explore the crisis, identifying the weaknesses in risk management programs and focusing on the things that were done right. Basel II and Basel III will be presented, along with the framework they provide.
Who should attend?
This comprehensive program is essential for:
- Executive management
- Senior management
- Risk professionals
- Auditors
- Regulators
Day 1
The current state of risk management
The current situation faced by many countries and the impact on businesses within these countries will be reviewed. This will be followed by a discussion and review of the structure of risk management and the introduction of the case studies.
Review of the current state of Risk Management
- The world-wide economic crisis; its causes and effects: Going back to the beginning a review of how the seeds were planted for the current crisis and how it spread throughout the world.
- The failures associated with risk management and the reactions: There are many failures that occurred in risk management programs. These failures will be reviewed and discussed for their impact on the future of risk management.
- The future of risk management from both the legislated and practical aspects.
Crisis Review
- The Nigerian Regulatory changes: In August 2009, the Central Bank of Nigeria (CBN) conducted a special audit of the Nigerian Banks, resulting in significant changes at approximately half of the Banks. Why did the CBN do this? What was the result?
- The Risk Management failures at BP: BP had a robust risk management program. What went wrong and how did it lead to the failure in the Gulf of Mexico?
- The crisis in Greece: What caused the collapse of the confidence in Greece? How did it affect the financial institutions in Greece? How do systemic issues affect financial institutions?
The concepts of risk
Defining Risk – A Primer
How you define risk determines how you will measure and manage it. The discussion of risk will begin with the concepts of probability and certainty, with examples provided for each. Statistical concepts like correlations and coefficients will be reviewed in order to establish the set of definitions.
Risk definitions will be presented and discussed with an emphasis on relating the definitions back to practical examples. The discussion will begin at the level of Systemic and Organization Specific Risk, as well as Credit, Market and Operational Risk. A full group of subset definitions will be presented and covered.
Cash flow volatility will be reviewed as a key determinant in building an ERM program.
The strategic plan is the basis for the risk management activities of the organization. This agreement between the Board of Directors and Management regarding future events and activities the company will participate in is critical to an effective ERM program.
Establishing the risk appetite quotient.
Using a case study as the basis, the development of the risk appetite will be focused on. This appetite, which links back to cash flow volatility, establishes the first set of parameters used by the organization in the ERM program. These parameters create the focus for ERM and are the first step in determining its effectiveness and influence in the company. Components of the risk appetite development include;
- Projected cash flows and profitability.
- The establishment of a hurdle rate for pending projects and established services.
- Correlations between different activities
- Capital deployment and leverage.
The current level of risk faced by the company
- As a concurrent activity, it is important to build the baseline for ERM within the organization.
Day 2
Basel II, Solvency II and Capital Management
The significant changes imposed by the implementation of Basel II will be explored, as well as the insurance industry’s Solvency II initiative currently being developed and implemented. Capital requirements
Basel II
- Defining Basel II – Why was it developed? What are the changes being implemented? What does it mean for a financial institution?
- The role of capital in risk management.
- The three pillars of Basel II (to be explored in detail on day 3)
Solvency II
- Defining Solvency II
- Understanding the impact on the insurance industry
Capital
- The different roles of capital
- Capital management
- Using capital management as a risk management tool.
Day 3
Credit, Counterparty, Market and Operational Risk and Basel III
The specific risk categories will be covered. The principals of the regulatory oversight of Basel II and III will be addressed. Capital as a tool will be introduced. Basel III changes will be reviewed in light of the risks being managed.
Credit and Counterparty Risk
- Building a credit risk program. Refining your approach to credit risk management
- Stress testing the loan portfolio
Market Risk
- Understanding the concepts of market risk, including interest rate risk and liquidity risk.
- Illiquidity will be explored in conjunction with a rapidly changing market
Operational Risk
- Building and defining an Operational Risk Management program.
- Operational risk analytics and their link to controls and audit.
Basel III – The changes to capital requirements as a result of the crisis.
Day 4
Using the Risk Management Program for Value Creation
The links between ERM and Value Creation will be explored. Concepts like Economic Value Added (EVA) and Risk Adjusted Return of Capital are examined and applied to Risk Management.
- Capital – Its various definitions and how it is deployed in an organization
- The role of insurance in risk management.
- EVA –An overall view of EVA will be covered and its use in relationship to profitability.
- RARoC
- Conclusion
Case studies will be used throughout the program to highlight the learning points
Centrally located hotel in Paris, Paris, France
This programme takes place on a non-residential basis at a hotel in central Paris. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
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John Hurlock
John is the Managing Director of SmarterRiskManagement, a consultancy that works with financial institutions on risk related projects and issues. The focus of the consultancy is on the development and implementation of Enterprise Risk Management (ERM) programmes and the component parts.
Before founding SmarterRiskManagement, John was the Director of Integrated Risk Management Consulting Services for Metavante Corporation, a $2 billion technology firm focused on financial institutions.
John has almost 30 years of experience in financial institutions as a practitioner and a consultant. His first fifteen years were spent working for financial institutions of various size and complexity, and has spent the last twelve plus years in the business consulting arena. During John’s banking career, he worked in several areas of banking including credit, treasury services and operations.
During John’s consulting career he has worked with domestic and international financial institutions ranging in size from the community bank market to a US$1 trillion international financial institution. He has assisted banks as they have worked through regulatory orders and issues and been heavily involved in the roll out of advanced risk analytics including risk-based capital, the Basel II Accord and stress testing.
John has presented courses throughout the United States, Europe, the Middle East and Africa. Programmes and workshops include the topics of Credit Risk, Market Risk, Operational Risk, Basel II and Strategic Planning. An area John has spent considerable time in is leading workshops for bank boards on the topics of corporate governance and risk management.
John has an undergraduate degree in Economics and an MBA from the University of Wisconsin. He is currently an adjunct professor for Webster University, teaching in their MBA programme. He teaches Investment, Capital Markets and Management. John has also authored several articles and white papers and is a sought after speaker at banking conferences.
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
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Course dates