The Energy & Resources industry is highly asset-intensive, and the companies who manage them are frequently confronted with regulatory compliance, safety and environmental threats in addition to old assets, maintenance issues and budgetary restrictions. Each of these aspects can have a huge impact on an organization’s performance as well as its external and strategic success.
A comprehensive strategy for risk management is vital to safeguard against these risks and to ensure that a business will keep meeting the demands of its customers. This article provides a list of the most important areas of asset and risks management:
Counterparty risk management is a process that focuses on ensuring that key relationships, like prime brokers and counterparties to derivatives, clearing banks, and custodians, are creditworthy. It also includes failsafe procedures that are designed to safeguard against financial losses or reputational damage should the partners fail. This is done through vetting vendors, and ensuring that the approval process does not only apply to the vendor but as well to the services they offer.
Market risk is the possibility of a loss in the value of portfolios. Both asset managers and risk management are concerned about it, but from different perspectives. Portfolio managers manage their market exposures to limit unintentional bets on market conditions and other variables that affect risk management, while asset management focuses on managing crowded trades, liquidity, leverage, volatility and cash flow.
A strong asset and risk management plan is vital to avoid unexpected challenges and maximising the impact of the assets of an organization. The three-line governance framework is a potent instrument for identifying and minimizing the risks that could impact the performance of an organization.