Thriving in a VUCA World: The Role of Risk Management Platforms in Staying Ahead

Navigating today's dynamic business landscape demands more than just having intuition, relying on past performance, and deploying conventional strategies. The rapid pace of technological advancements, coupled with unpredictable market shifts, has ushered in an era in which agility is a prerequisite for the survival and success of a business. Traditionally, B2B transactions were characterised by long-term interpersonal relationships, relatively few counterparties, and limited geographical exposure. However, the digital revolution has upended these norms. Today, companies engage with a multitude of partners across industries, geographies, and cultures. This expanded reach has led to increased volatility, uncertainty, and complexity in assessing the credit, supplier, and compliance risk of counterparties. Therefore, staying ahead of the risk curve is not just a luxury but a necessity. Businesses that can anticipate and effectively manage risks are the ones that thrive, no matter what the circumstances.

As the B2B landscape becomes more complex, so do the factors impacting creditworthiness, supplier, and compliance risk. In today’s volatile world, traditional financial statements like balance sheets and income statements that provide historical, structured data are no longer adequate to get a complete picture of a business’ creditworthiness or financial strength. Businesses also need to evaluate unstructured data from a variety of sources, including social media, in order to gauge the risk of counterparties. Consequently, they must recalibrate their approach to B2B Risk Management.

The Rise of B2B Risk Management Platforms

The traditional approach to credit, supplier, and compliance risk management involved collecting and manually analysing data from various sources to make decisions. This was a time-consuming and error-prone process that often led to delays and missed opportunities. However, with the advent of B2B risk management platforms like Rubix Automated Risk Management & Monitoring System (Rubix ARMSTM) and Rubix Early Warning System (Rubix EWS), businesses can now automate much of the data collection, analysis, and risk-scoring process, allowing them to adapt rapidly to the changing risk profile of their counterparties. Rubix ARMS and EWS platforms offer a suite of integrated solutions designed to assess, monitor, and manage credit, supplier, and compliance risk across the B2B spectrum. Large corporates, banks, credit insurers, fintechs, and SMEs are all increasingly turning to these platforms to gain a competitive edge in an ever-changing market.

Rubix ARMS and EWS collate structured and unstructured data from diverse data sources including identity records of businesses, their financial statements, statutory filings, legal history, social media profiles, and news updates. This helps create a comprehensive risk profile of the counterparties. The platforms then use Risk Scoring models to provide a Risk Score for each counterparty; credit limit algorithms are also deployed to set credit limits for each counterparty based on its Risk Score.

Artificial Intelligence (AI) and Machine Learning (ML) algorithms embedded in these risk assessment platforms analyse vast amounts of data at incredible speed, identifying patterns and correlations that humans might miss. Businesses that deploy B2B risk management platforms gain the ability to make faster and more accurate risk assessments, which makes it possible for them to react swiftly to the changing risk profiles of their counterparties. This helps them reduce their financial exposure to counterparties that have become riskier, protecting them from defaults, bad debts, and supply chain issues.

The Power of Data-driven Insights

At the heart of an effective risk management platform lies the ability to process and interpret vast amounts of data. By tapping into a wide range of structured and unstructured data sources, including identity data, financial statements, tax filings, statutory compliance documents, litigation records, and even employee and customer sentiment from social media, businesses gain valuable insights into the potential risks of their counterparties. These insights are not based on only one-time assessments but are dynamic, adapting to real-time changes and providing a comprehensive understanding of the risk landscape.

For instance, let us say a company is assessing a dealership application from a small business owner. Through data-driven insights, the Rubix ARMSTM platform can analyse the past financial performance of the small business, benchmark its performance with peers, examine its litigation record and statutory compliance, and review customer and employee feedback. Based on these factors, it can generate a Risk Score for the small business. If the score indicates that the business carries high risk, the company may choose not to appoint it as a dealer.

Thus, data-driven insights obtained from Rubix’s proprietary platforms lead to more informed decisions and lower potential losses.

Real-time Monitoring and Alerts

Time is of the essence in the modern business environment, as fortunes can change in a day. Therefore, the ability to detect changes in a counterparty's risk on a near real-time basis is paramount. The Rubix EWS platform makes this task easier by providing continuous monitoring and alerts that keep businesses informed about shifts in the risk levels of counterparties. Whether it is a sudden change in a counterparty’s financial health or new litigation with the potential to impact it adversely, Rubix EWS provides alerts and timely notifications, allowing a business to take proactive measures. In order to identify potential dangers, it monitors multiple external data sources (news, social media, statutory filings, credit bureau data, and so on) concerning counterparties.

For instance, if a long-standing client of a company suddenly starts delaying its GST and Provident Fund filings and employees are complaining of delayed salary payments on social media, the Rubix EWS platform immediately detects a higher level of credit risk associated with the counterparty and alerts the company.

This dynamic approach to near-real-time monitoring ensures that risks get identified and addressed promptly, allowing companies to minimise potential losses. The deployment of risk management platforms like Rubix EWS that monitor early warning signals is an example of how businesses can use technology to stay ahead of the risk curve.

Customisable Risk Models

Every industry is unique, and so are the associated risk factors. Off-the-shelf risk models often fail to capture the nuances of specific industries. Rubix ARMSTM addresses this limitation by offering customisable risk models. Businesses can adapt these models to their industries, partner types, and risk appetite, ensuring that the risk assessment process aligns with their specific needs and requirements.

These risk models can be tailored to incorporate extra risk factors (e.g., seasonality) as may be required by the CFO and the risk management team of a company. The significance of each risk factor in the credit risk model is adjusted to align with the company’s risk appetite. Once the risk model is operational, it automatically assigns a risk score to all counterparties, and credit limit recommendation models propose appropriate credit limits based on the respective risk scores of counterparties. This approach minimises the need for human involvement in the credit limit setting process, thus decreasing the potential for errors or misconduct.

After testing and deploying the credit risk and limit recommendation models, they become integral components of a company's credit workflow system. Any deviations from the suggested credit limits necessitate higher-level approvals, enhancing control and preventing the extension of credit to high-risk partners.

Fraud Detection and Prevention

Fraud detection and prevention have become critical aspects of credit risk management, particularly with the rise in fraud incidents causing substantial financial losses. According to the Association of Certified Fraud Examiners (ACFE), the average fraud incident results in a median loss of $117,000 for an organisation and often goes unnoticed for an entire year. However, the advent of data science-driven technologies and fraud analytics tools has paved the way for quicker detection of fraudulent activities, leading to reduced losses and diminished risk exposure. Organizations worldwide have recognized the significance of these advancements and are proactively investing in data-driven tools. The ACFE's 2022 Anti-Fraud Technology Benchmarking Report revealed that over 40% of respondents have expedited their adoption of data analytics, especially during the pandemic. Nearly 60% of respondents expressed intentions to increase their anti-fraud technology budgets in the coming years, with a focus on advanced analytics, including AI, ML, and predictive modelling. As fraudsters continuously devise new methods to exploit vulnerabilities, financial institutions, banks, and non-bank entities alike are being compelled to invest in intelligent systems that leverage data to thwart these malicious actors.

Expanding Credit to SMEs

Platforms such as Rubix ARMSTM deploy estimation models to estimate key financials such as revenue and profitability due to the non-availability of financial data pertaining to SMEs (sole proprietorships and partnership firms) from the Registrar of Companies.

This allows the platform to determine the creditworthiness of SMEs, resulting in a higher flow of bank and trade credit to them. This also helps SMEs to grow and formally enter the supply and distribution chains of larger companies.

According to a global survey conducted by McKinsey and the International Association of Credit Portfolio Managers (IACPM), financial institutions are increasingly using machine-learning models for risk grading of SMEs (more than 70% of respondents) and establishing early warning systems (more than 50% of respondents).

Competitive Advantage

Staying ahead of the risk curve in a rapidly evolving market can confer a significant competitive advantage. By deploying Risk Management platforms like Rubix ARMSTM, EWS, and tools like video KYC (vKYC) and e-KYC, companies differentiate themselves by demonstrating a commitment to prudent risk management practices. This can be particularly appealing to banks, financial institutions, and investors who value stability and responsible business conduct. Moreover, a solid risk management strategy developed through the insights provided by these platforms can enhance a company's reputation, attracting partners who may be more likely to enter into long-term, mutually beneficial relationships.

Enabling Cross-functional Collaboration

Risk management is not the sole responsibility of a single department; it is a cross-functional endeavour. Finance, procurement, sales, and risk management teams must collaborate closely to ensure a comprehensive and well-rounded risk assessment process. Rubix’s risk management platforms facilitate this collaboration by providing a centralised platform where multiple stakeholders within the company can view counterparty data and share their expertise and insights.

While the primary goal of risk management platforms is to mitigate immediate counterparty risks, their impact extends far beyond that. By consistently identifying and addressing risks, companies build a culture of risk management that permeates their entire organisation. This proactive approach to risk not only safeguards against potential disruptions but also lays the foundation for sustainable growth and innovation.

As the B2B landscape continues to transform rapidly in today’s VUCA world, businesses must adopt strategies that prioritise agility, risk mitigation, and collaboration. Embracing risk management platforms is not just an investment in risk management; it is an investment in building a future-ready and resilient business and Rubix is here to help you with the arduous task.

If you have more queries about our platforms and solutions or if you wish to request a demo, please reach out to us at?[email protected] ?or 022-49744274.