The Energy & Resources industry is asset-intensive, and the organizations who manage them are frequently faced with regulatory compliancy security and environmental risks, old assets, maintenance issues, and budget limitations. Each of these aspects could have a significant impact on the operational, external and strategic success of an organization.
A comprehensive risk management plan is essential to guard against these risks and ensuring that a business can continue to meet the demands of its customers. This article provides a list of the most important areas of asset and risk management:
Counterparty risk management is a technique that focuses on making sure key relationships, such as prime brokers and counterparties to derivatives clearing banks, and custodians are creditworthy. It also has failsafe procedures that are that are designed to safeguard against reputational and financial harm if these partners fail. This is accomplished by vetting vendors, and ensuring that the approval process doesn’t just apply to the vendor but also the service they provide.
Market risk is a potential decrease in the value of your portfolio. Asset managers as well as risk management are concerned about this, but from slightly different perspectives. Managers of portfolios focus on managing their market exposures to minimize unintended market and factor bets, whereas risk managers attempt to manage their crowded leverage and trades, and to examine liquidity and cash flow.
A solid asset and risk management program is crucial to avoid unexpected challenges and maximizing the value of the assets of an organization. The three-line governance framework is a useful tool to identify and reduce the risks that could negatively impact an organization’s performance.