The Energy & Resources Industry is highly asset-intensive. Organizations that manage these assets are typically faced by regulatory compliance environmental and safety threats and equipment that is old maintenance issues, as well as budget limitations. All of these factors can have a huge impact on an organization’s operational successful external, strategic and internal success.
A well-rounded approach to managing risk is essential to safeguard against these risks and ensure that businesses can keep meeting the needs of customers. This article will highlight the key areas of asset and risk management:
Counterparty risk management is focused on ensuring that important relationships (such as prime brokers and derivative counterparties, as well as clearing banks and custodians) are reliable and creditworthy, and includes the implementation of security measures that guard against financial loss or reputational damage from the failure of these partners. This is achieved through vetting vendors, and ensuring the approval process does not just apply to the vendor, but as well to the service they provide.
Market risk is the chance for a decline in the value of a portfolio and is a problem that asset managers as well as risk managers have to deal with however from slightly different perspectives. Portfolio managers focus on managing their exposure to markets to minimize unintended market and factor bets, while risk managers are attempting to manage the influx of leverage and trades, as well as to monitor liquidity as well as cash flow.
A solid asset and risk management program will enable an organization to avoid unexpected challenges and maximize the use of its assets. The three-line governance framework is a potent instrument for identifying and minimizing the risks that could affect the performance of an organization.