Services Offered
1. Board Orientation and Board Advisory
Finance and financial risk management have their own jargon and conventions. Many of the developments over the past 25 years can seem infuriatingly complex. Some of this complexity is legitimate but much of it is the product of conscious obfuscation on the part of practitioners. An understanding of advanced mathematics is not necessary to develop the essential structural insights required by non-executive directors of financial institutions. DMR Risk Advisory specializes in workshops designed to convey the fundamentals of modern financial products and risk management to non-specialists.
A. Essentials of Financial Risk Management
Finance and financial risk management have their own jargon and conventions. Many of the developments over the past 25 years can seem infuriatingly complex. Some of this complexity is legitimate but much of it is the product of conscious obfuscation on the part of practitioners. An understanding of advanced mathematics is not necessary to develop the essential structural insights required by non-executive directors of financial institutions. DMR Risk Advisory specializes in workshops designed to convey the fundamentals of modern financial products and risk management to non-specialists.
- Demystifying financial derivatives - swaps in terms of an on-balance sheet analog
- Option pricing - a non-mathematical exposition
- Value-at-Risk: history, rationale & limitations
- Measuring & managing counterparty credit risk
- Operational Risk: beyond measurement to management
- Stress Testing: a three pronged approach
- Organization, compensation and culture
- Lessons from the Great Recession
B. Structural Diagnosis of Dark Risk
Much of financial risk management uses classical statistical techniques. The basic assumption of these techniques is a stable random distribution. The dirty little secret of financial markets us that they are characterized by unstable random distributions. This gives rise to event risk more recently referred to as Black Swans. Traditional risk management techniques are useful for controlling day-to-day fluctuations but they say little or nothing about potential extreme events. Analysis of the potential for such events is a bit like groping in the fog, but structural analysis can offer some clues. Hunting Black Swans is not an exercise in advanced mathematics. Rather it is an application of experience and judgment to evaluate structural pressures and potentially unsustainable situations. It requires a willingness to confront often unpleasant facts and to overcome constraints on our thinking imposed on us by our past. In this process, experienced outsiders such as non-executive directors have a special contribution to make by bringing varied perspectives to the discussion.
- The visible versus the hidden
- Dark Risk: a structural framework
- Company specific Dark Risk diagnosis: facilitation and brainstorming
2. Risk Assessment Technology Management: deployment, operation and improvement
A. Beyond Buy or Build
The standard commercial arrangements between software and computer service firms and their clients is highly detrimental to successful long-term collaboration. They place all the risk of a purchase decision on the clients and offer little financial incentive for vendors to broaden and deepen relationships with existing clients. The key to success is designing both the software and the commercial terms of the relationship to achieve Buy and Build. This allows clients to devote their staff to firm specific modifications and extensions appropriate to their unique strategy while also gaining the cost advantage of functionality that has been effectively commoditized.
B. Balancing Dynamic Efficiency and
Static Efficiency
Too often software is chosen purely on the basis of
currently available features and functions. Little attention is given
to dynamic efficiency - the ability of the software to evolve
effectively to meet inevitably changing future needs. As a result, after
five to seven years a new software system has usually become encrusted
with a mass of patches, workarounds and suboptimal functional
extensions. At some point it is decided that a whole new system is
again required. Adherence to a proper modular architecture is extremely
difficult, but it can pay major dividends in the long run. Rarely,
however, do clients demand this of their vendors by making it a top
selection criterion.
C.
Achieving Buy and Build
- Technical requirements - modularity, documented and consistent APIs and guarantees that compliant extensions will be version safe.
- Commercial requirements - vendors must bear a greater share of the project risk of bringing a system live while clients must recognize that recurring fees with reasonable margins tied to volume of use of a system is an essential source of their continued leverage over vendors.
D.
Technology in Support of Sound Judgment
- Visibility and customized reporting
- Drill-down to relevant details
- What-If analysis