The Energy & Resources Industry is highly asset-intensive. Organizations that manage these assets are frequently faced by regulatory compliance environmental and safety threats in addition to aging equipment maintenance issues, as well as budgetary limitations. All of these factors could have an impact on the external, operational and strategic viability of an enterprise.
A well-rounded strategy for risk management is crucial to guard against these risks and ensure that a business will remain in a position to meet the needs of customers. This article highlights the main areas of risk and asset management:
Counterparty risk management focuses on ensuring that the relationships with key players (such as prime brokers and derivative counterparties, as well as clearing banks and custodians) are creditworthy and that includes implementing failsafe procedures that protect against financial loss or reputational damage resulting from the failure of those partners. This is accomplished by vetting the 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 possibility of a decline in the value of a portfolio. Asset managers as well as risk management are worried about it, but from different perspectives. Portfolio managers concentrate on managing their exposure to markets to limit unintentional market and factor bets, whereas risk managers attempt to manage overcrowded trades and leverage, and to monitor liquidity as well as cash flow.
A robust asset and risk management plan is vital to avoid unexpected issues and maximizing the impact of an organization’s assets. The three lines of defense governance framework is an effective approach to identifying and mitigating the risks that could affect the success of an organization.