What makes a risk management program effective and efficient?

1. Clear objectives aligned with organizational goals. 2. Thorough risk identification and assessment. 3. Proactive approach to risk mitigation. 4. Integration into business processes. 5. Continuous monitoring and reassessment.

The risk culture of any organisation plays very important role in risk management. Any organisation who seeks to manage its risk properly must put in place a culture that will be a guide to every staff for successful risk management.

The job or a risk specialist or risk manager is to make sure that he/she understands the relevant markets almost the same as traders do. Without being a proper sparring partner on real-markets, you won’t succeed. Therefore, in my humble experience one of the best risk managers are people who were traders/front office. Such mentality allows you to be able to identify the relevant risks which your business runs.

It is essential to have a profile based on prevention, rather then in reaction. Reaction is still important, but it's usually needed when we didn't planned properly or we weren't alert enough. Handling risk, you need to be very aware of the fluctuations and major changes in your market, understanding that an emerging risk, even that without impact in the present, can become a major threat in the future. So identify the main sources of relevant information as inputs to ensure you considered all the risks with significant or possible major impact to your company.

A common mistake and illusion is that once you've implemented a control to mitigate your risk, it will stay efficient and without need for review. The most important rule is that when you review a risk, you take as much objective information to classify it as possible to determinate it's likelihood (ex: number of times it happened in the past) and impact (ex: in a scale from 1 to 4, being 1-No Impact, and 4-Critical Impact, how damage would it cause?). After this, analyze rationally if the controls you have identified are/will be effective enough to address that risk and/or if they have contributed in a significant way to low the likelihood and/or impact. Then, identify the residual risk you expect to accomplish with those controls.

Communication is absolutely essential part of Risk Management. Either in risk advisory or in internal units the risk management if it wants to have an impact has to support the business and bring clear value, not limits and constraints. Risk management is not about forbidding, and limiting people but it’s about bringing ideas on table and clearly communicate what is the risk-responsible way forward. I would say the strong communication is the most common weakness of risk managers, the are too often good quants with lack of business or management requirements.

The most important thing about communication in risk, is that it happens in a way that allows every interested party to not only understand clearly the results and inputs received, but also to have a user friendly methodology that makes it simple to interact, record, and implement the changes needed to deal with the risk profile. Alongside this, communication becomes key in managing the risks, no matter if the mitigation is centralized or disperse, the results and updates must follow an efficient process in order to properly control the big picture status of a company risk profile. All the people involved must be aware and familiar with these processes.

We, risk managers, live in a great period as all business owners are exposed to ESG, energy efficiency requirements, employee standards, new trends in economies. Ur makes the job really interesting , especially in the field of commodities. I do recommend to all potential candidates to consider becoming a risk manager.