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RISK MANAGEMENT

Key benefits of risk management

Our approach to risk analysis and risk quantification enables our clients to estimate financial repercussions of risk realization and a common denominator for ranking and managing different risks.

  • –   Assessment of financial exposure to risks and impact of risks on current and past results.
  • –   Estimation of monthly liquidity requirements based on business plans and risk quantification, accounting for uncertainty – revenue and cost-side risks.
  • –   Determining credit rating given current exposures. Appropriate actions to reduce riskiness will improve credit rating.
  • –   The advisability of hedging – breakeven point between financial effects of lower exposure and hedging costs, cost-wise and quantity-wise hedging strategy optiomization.
  • –   Calculation of risk adjusted price mark-ups (accounting for both costs and risks) per customers, markets…
  • –   Capital structure optimization – debt duration and interest rates should match credit rating, and both size and dynamics of (financial) obligations and volatility of cash flows.
Risk analysis

Identification and quantification of each factor of risk that affects the client’s business. Summing up the effects to obtain capital at risk on the company level. This analysis enables client tailored determination of optimal capital structure, pricing strategy, hedging strategy.

process of our service

a) Risk identification – We identify key factors of risk that affect the company’s performance – also the hidden risks.

b) Risk quantification – This phase essentially attaches values to worst-case scenarios and is thus essential for decision making.

c) Risk aggregation – The results of quantification phase are summed up to the company level. Additionally, we identify factors of risk that contribute the most to the overall exposure – effectively we identify key areas that need special attention/treatmement.

risk aggregation

d) Policy recomendation – Preventing or treating negative impacts of various risk factors on company performance. We provide both quantity- and cost-wise optimization of hedging and exiting strategies. Knowing the contribution and importance of individual risk factors, a company can improve its pricing policy so that the prices reflect the risks, associated with different products.

e) Credit risk – The past few years have shown the importance of proper handling of credit risk and the possible drawbacks related to its analysis. We have developed a simulation model that enables us to analyse the sustainability of indebtdness for a given company. Through the simulation model we can:

  • 1.   estimate the probability of illiquidity and probability of insolvency (essencially probability of default) during the planning horizon,
  • 2.   perform scenario analyses regarding different balance sheet or P&L items and therefore identify key areas of concern,
  • 3.   optimize planning, capital structure, loan conditions…

 

probability of illiquidity

 

confidence interval for FCFF projections

Besides automated software solutions we also offer estimation of credit risk exposure, regardless of the credit portfolio’s structure. With this information we can calculate the required markup and payment-term policies that mitigate the exposure, or derive appropriate compensation for the taken risk.

Training and support

We also wish to transfer our knowledge to our clients and develop their in-house capabilities by providing support and training for all the above-mentioned services as well as for the use of our software solutions.