The Energy & Resources industry is heavily dependent on assets, and the businesses that manage them are typically confronted by regulatory compliance, safety and environmental threats in addition to old assets, maintenance issues, and budget limits. All of these factors can be a major influence on an organization’s internal external and strategic performance.
A comprehensive risk management strategy is crucial to protect against these risks and ensuring that a business can continue to meet the demands of its customers. This article will highlight the key areas of asset and risk management:
Counterparty risk management is a technique that focuses on making sure key relationships, including prime brokers, counterparties to derivatives, clearing banks, and custodians are creditworthy. It also has failsafe procedures that are designed to guard against reputational or financial damage should the partners fail. This is done by vetting vendors and making sure that the approval process extends not just to the vendor, but also to the particular service they provide.
Market risk is the possibility for a decrease in value of the portfolio and is a common challenge that both asset managers and risk managers have to deal with but from slightly different perspectives. Portfolio managers manage their exposure to markets to reduce unintentional bets on market conditions and other variables, while risk management focuses on managing crowded markets, leverage, liquidity, expected volatility, and cash flow.
A solid risk and asset management plan will help a company avoid unexpected challenges and maximize the impact of its assets. The three-line governance framework is a useful instrument for identifying and minimizing the risks that could affect the performance of an organization.