Tying the Knot Between Risk and Performance Management

In the wake of the financial crisis, banks are trying to integrate their risk and performance management strategies to help prevent a similar situation occurring.

As financial institutions question what went wrong, what is emerging is that a new risk-conscious approach to corporate performance management is going to be essential. Based on its research, Accenture developed the Integrated Risk and Performance Management Framework to help banks develop this integrated approach.

In the wake of the recent global financial crisis, the areas of risk and corporate performance management are under close scrutiny as companies try to work out how to avoid such a situation occurring again.

Accenture launched its Integrated Risk and Performance Management research in 2010 to help companies develop new perspectives and capabilities to manage corporate performance. In particular, the research focused on helping financial institutions overcome post-global financial crisis challenges.

Several key challenges are dominating C-level executive agendas across the financial services industry:

• Restoring shareholder value and stakeholder confidence. More broadly,  perceptions of the banking industry have taken a considerable hit and many executives face a battle to improve confidence across stakeholder groups including investors, regulators, governments, customers, media and the general public.
   
• Managing higher costs of capital. One of the key impacts of the crisis has been the higher costs of capital and the impact to balance sheets and profitability.
  
  
• Adapting to regulatory reforms across geographies. Many governments have increased their role in regulating local markets since the crisis. In parallel, the G20 summit in November 2010 has seen agreement on revisions to the banking system under Basel III. On a phased basis between 2011 and 2019, banks around the globe will be subject to greater capital, liquidity and supervisory requirements.
  
  
• Improving the quality of assets on and off balance sheet. Financial institutions need to look at how asset quality is monitored and maintained across their banking and trading books.
   
• Supporting the changing business. Banks are under various pressures, including government-enforced business model changes; growth strategies in new and emerging markets; an evolving mix of business and asset classes; and greater complexity as interconnectedness and risk are better understood. Getting to grips with each of these challenges will require fundamental reforms to internal banking operating models, processes and systems, and most importantly, a new outlook on risk and corporate performance management.

Getting to grips with the challenges facing the C-suite executive agenda will require a fundamental review of how financial firms manage their risk/return profile. Following that, executives need to consider the operating models in place across risk and finance to monitor and manage underlying key performance indicators and key risk indicators. In addition, the data management and analytical technologies in place to support this capability are fundamental to ensuring accurate and risk-adjusted calculation, aggregation and reporting of key indicators across all levels within the organization.

Integration of risk and finance reporting, together with greater analytical capabilities, is allowing financial institutions to manage the risk, funding, liquidity and capital requirements of their business more dynamically. This includes the ability to monitor and manage risk appetite in real time.

The Accenture Integrated Risk and Performance Management Framework was developed to help financial firms respond to the post-global financial crisis. It provides a set of business processes, methodologies and supporting technologies that give financial institutions a new risk-conscious way of managing corporate performance. It can help improve return on equity by up to 1.5 percent, risk-adjusted return on capital by 2 percent or more, and economic profit margin by up to 11 percent.