Looking through the holidays into 2010 there are four clear priorities for risk management that cut across all tiers with financial institutions. Over the last year the pendulum has swung from the exotic to the pragmatic, from chaos to order within financial services. The four priorities for risk in 2010 can be derived from the word D.A.T.A.(data, analysis, transparency, accuracy).
Risk officers across the industry will focus on their DATA, but moreover as a function of the raw information (data), improving their interpretation of it (analysis), creating a higher level of vertical and horizontal understanding (transparency) and using data to hone in more closely on the truth (accuracy).
For 2010, risk priorities will focus on data, analysis, transparency and accuracy (DATA).
One might argue this has always been the role of the risk manager, but now it's different. The difference is that when economies are expanding, cash is flowing and growth is in double digits, risk management takes a back seat to product innovation, financial engineering, marketing and politics.
Financial services companies will now focus on continued survival, stability and modest growth. Lapses in enterprise risk management as a strategic priority partially led to financial crises and unprecedented financial damage was done.
Now enterprise risk management, by necessity, will become part of every organizations DNA. Organizations who accept this challenge as a driver of future growth will excel. Organizations that create ERM window dressing will find themselves mired in among other things, a regulatory tangle.
In 2010 an organization's risk management practices will further impact business models. An ERM program that can be effectively articulated will impact cost of capital as credit ratings agencies continue to refine the integration and use of ERM reviews in bond and issuer ratings.
A solid ERM program may make the difference between an issue being rated BBB or A. The quality of an institutions ERM program and management ability to make investors understand and value it will impact an equities perceived value in the market.
Equity analysts will begin to consider, in addition to strict financials and growth estimations, a companies probability of remaining stable and stability means understanding and controlling for credit, market, operational and sovereign risks.
In 2010 the refinement of ERM programs within financial institutions will involve a shift of capital towards investment in data, analysis, transparency and accuracy. This investments will translate into revenue growth and thus increased value.