Risk management in finance refers to tools, concepts and systems that are used to minimize hazards, forecast problems and maximize profits. It is a standard part of banking, insurance and investment activities. Keep reading to learn how risk management is conducted in different industries and careers, according to Investopedia.
What is Risk Management?
Risk management used to just concern financial health, but it now includes strategic planning, legal vulnerabilities and regulatory compliance. Modern business environments are full of various risks that that debilitate or destroy a company. These could be an IRS tax audit, a service liability lawsuit or a doomed product line. Companies use risk management systems and frameworks to enhance performance, reduce mistakes, satisfy compliance demands and contribute to better decision making.
Risk management helps to highlight concerns, improve processes and establish better internal controls. Financial risk management may involve capital adequacy, strategy management, credit risk measurement, operational metrics and economic capital management. It may involve market, liquidity, merger, regulatory, energy, commodity and transaction risks. Actuarial services, financial engineering, quantitative evaluation, treasury transformation and portfolio models may be used to calculate risk levels and severities.
What Jobs are Available in Risk Management?
Most banking, finance, investment, accounting and insurance organizations will use risk analysts to conduct basic evaluations. For example, a risk analyst who works for a community bank that caters to local businesses will perform credit risk checks and financial analysis on small to medium sized businesses that apply for loans or financing services. They may monitor and analyze the financial performance of small companies to ensure their compliance with the conditions of their contractual agreements.
Risks managers may assist in the creation, upkeep and development of client review processes, credit analysis models and portfolio management systems. They may conduct microeconomic analysis on currencies, report on third-party risk activities and social impact analysis on investment portfolios. Risk managers usually take the lead in various organizational tasks related to portfolio management support. They may create regulatory reviews, account scorecards, profile health reports and exit strategy plans.
Risk Management Proficiencies
Financial professionals who deal with risk analysis and management must have specific skills and core competencies. They must be good at risk identification, assessment, monitoring and remediation. Any financial mistakes or miscalculations may cost their company tens of thousands of dollars. Investment companies that make a wrong decision may end up losing millions of dollars. Risk management requires strong skills related to mathematics, factual analysis, problem solving and metric development.
Risk management professionals usually have a long history of effectively and independently working with complex content, tough deadlines and fast paced environments. Senior risk management leaders will be pragmatic problem-solvers who use their data synthesis, forward thinking and relationship management skills to handle prominent accounts and multi-million dollar transactions. Risk management may involve constantly changing variables, complex financal models and computer programming languages.
Related Resource: What is a Financial Manager?
Risk management in finance involves business professionals who build partnerships, prioritize problems, conduct analysis and manage multiple priorities. Other potential careers include management analyst, economic actuary, corporate risk auditor and risk and control supervisor.
