Risk Management – An Investment Banking Perspective
The difference between an average project manager and a good project manager is that the latter foresees events that might potentially impact projects and as a result devises strategies to address such events effectively. A good project manager believes there is an opportunity hidden in every threat. Investment Banking has been my domain for a significant part of my career and I would therefore instinctively derive examples from this domain to illustrate my ideas further.
Increasing System Demands
With every passing day, Information Technology is advancing and so are corporate expectations within the Investment Banking business. Systems are expected to deliver outputs for clients in micro-seconds. And trade volumes are on the rise. If project managers do not pro-actively anticipate and forecast increasing system requirements and customer expectations, it becomes very difficult to deal with unforeseen events. This potential increase in volumes and demand for greater speed may both be considered as opportunities or threats. Good project managers acknowledge such threats and exploits them to better streamline systems, standardize and normalize them and ensure that they withstand the test of time.
Business Interruptions due to Disruptive Events
Many adverse events impact businesses globally and potentially disrupt business operations since many systems may not be resilient to withstand such disruptions. Only good project managers plan well ahead and implement systems capable of handling disastrous situations. Under such circumstances, events perceived as threats become opportunities for earning greater benefits. This is especially true for good brokers who exploit such unexpected events to reap benefits. Project Managers should also consider ‘Regulatory and Compliance’ factors and not just focus on system speed and performance. In their pursuit for better system speed and performance, Project Managers sometimes breach regulatory and compliance requirements costing companies millions in fines and penalties – example includes the JP-Morgan Trading loss amounting to 2.2 billion dollars in 2011. This particular event compelled investment banks to review aggressive trading methods and compliance checks in order to prevent compromises in ‘faster’ systems.
Below are Risk Management principles as defined by the ISO (International Standards Organization):
- The process should create value
- Should be an integral part of the organizational process
- Should be ingrained in the decision making process
- Must address uncertainty
- Should be systematic and structured
- Should be based on the best available information
- Should be tailored to the project
- Must consider human factors
- Should be transparent and all-inclusive
- Should be dynamic and adaptable to change.
- Should be continuously monitored and improved upon as the project moves forward
Excellent project managers effectively assess risk and adhere to the above-mentioned guidelines.
–by Ramesh Nadagouda