Risk Impact Assessment Matrix

Unmasking the Hidden Dangers: A Guide to Risk Assessment in Treasury

In treasury operating models, risks are not just abstract concepts; they are lurking threats that can dismantle entire organizations. This post, the second in our series, is your wake-up call to assess and measure these risks. Originally written in 2022, it has been updated with the most current insights.

Let’s examine the critical steps required to protect your Treasury operating model

1. The Broad Strokes of Risk Identification

First and foremost, take each risk and scrutinize it thoroughly. Consider how likely it is to occur, the severity of its consequences, and the overall impact on your organization. This rigorous examination helps your team to focus on the most pressing issues, ensuring their efforts have maximum effect.

 

2. The Seven Stages of Risk Assessment

Let’s look into the seven essential stages of risk assessment. These steps are not just suggestions; they are imperatives for any financial firm serious about its survival and success.

2. 1 Front to Back Risk Assessments

Examine your technology functionality, trade processing, data stores, data integration, and analytics platforms. How proficient are you at processing, reporting, and deriving insights? Any weaknesses here can be fatal.

2.2 Technology Maturity

Conduct a comprehensive ‘health check’ on your investment technology portfolio. Identify how you can fortify your ecosystem to boost productivity and cost-efficiency. Ignoring this step could leave you vulnerable to competitors.

2.3 Technology and Operations Capability

Evaluate your technology delivery and operations. Are your current capabilities sufficient to support transformation and new methodologies? If not, you’re already behind.

Risk ID Process

Visual 1: The process of risk assessment and mitigation. Critical steps necessary to protect your firm from potential catastrophes.

2.4 Operational Readiness

Use benchmarking, diagnostics, and portfolio data to scrutinize your technology operating model. Are you prepared for transformation and the adoption of new technologies? If the answer is no, it’s time for an overhaul.

2.5 Service Taxonomy

Validate your current state service capabilities.  Analyze risks in structural, qualitative, and validation terms to develop common problem statements. This step is crucial in identifying systemic issues that need immediate attention.

2.6 Productivity Measurement

Assess the operating performance of trading, allocation, and operational cost optimization. This measurement will highlight inefficiencies that can no longer be ignored.

2.7 Simplify

Review and streamline your treasury operating model. Simplify and compress asset-class trading functions and technology operating processes. Complexity is the enemy of efficiency.

 

3. Making Sense of the Data

After meticulously following these steps, you’ll be left with a trove of data. The next critical move is to structure this data into a comprehensive report, presenting the relative risks and their impacts in a risk matrix. This clear visualization allows for prioritization and strategic action.

Visual 2: Risk Impact Assessment Matrix

 

4. Spotting the Risks

This is where you pinpoint the specific risks that came up in the earlier steps. By identifying these risks, you’re ready to create focused strategies to tackle them head-on, making sure your organization stays on track and resilient.

 

5. Proactive vs. Reactive Mitigations

With your risks mapped out, it’s time to implement mitigations. These can be retroactive, addressing issues after they occur, or proactive, preventing impacts before they happen. Proactive mitigations are particularly powerful, often necessitating significant changes to processes, systems, and even personnel roles and responsibilities.

 

6. The Path Forward

Once you’ve navigated these stages, you’re ready for the final step in our trilogy: managing the most critical treasury risks. This forward-thinking approach will not only shield your firm from immediate threats but also position it for long-term success.

Risk assessment is not a mere checklist; it’s a lifeline for your firm. Treat it with the urgency and seriousness it deserves.

 

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References:

Harvard Business Review. (2022). Risk Assessment for Financial Services: Protecting Your Firm in Uncertain Times.

Harvard Business Review (2023). The Framework for Risk Management.

PwC (2023). Risk in Review: Global Risk Study.

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