Posted by Mark Brousseau
Combating fraud -- and more efficiently and precisely identifying suspect transactions -- was the hot topic at last week's BAI Payments Connect conference in Phoenix, said US Dataworks (www.usdataworks.com) Product Manager Leilani Doyle (ldoyle@usdataworks.com).
"Here is the issue: financial institutions have fraud systems that send alerts each time a suspect transaction is idenitified," Doyle explained. "Seventy-five percent of these suspects prove to be false positives. Financial institutions need a better way to prune out the false positives with a higher percentage of accurately identified fraud."
"By using an enterprise fraud hub -- which consolidates payments and related data from various channels -- banks can reduce the number of false-suspect alerts they receive by more than 50 percent, without the risk of letting a higher number of fraudulent transactions slip through," Doyle said. "One bank did a presentation at the BAI conference explaining how breaking down payments silos would allow banks to more easily 'connect the dots' to identify systematic fraud. If payments silos do not share information, the ability to identify organized fraud is far more difficult -- if not impossible."
Another bank did a presentation at BAI Payments Connect on how it has used modeling to monitor a higher number of transactions while reducing the staff required for this function by over 30 percent.
Beyond fraud, another theme of the event was how banks can regain a competitive advantage in the payments space. Doyle noted that Federal Reserve Bank executive Richard Oliver gave an insightful presentation on how banks have lost their edge in transaction processing to non-bank competitors. Banks have been too slow to react to changing market demands, and this dawdling could eventually cause them to be lose further ground to nimble competitors with more compelling products, she said.
The good news: Oliver said businesses still have tremendous trust in banks -- something that should not be discounted. But banks will likely have to partner with other entities to bridge their product gaps.
What do you think?
Showing posts with label enterprise risk management. Show all posts
Showing posts with label enterprise risk management. Show all posts
Monday, March 14, 2011
Thursday, November 19, 2009
Recession Creates Supply Chain Risk
Posted by Mark Brousseau
The drive to control operating costs and improve efficiencies by global businesses during recession has the potential to create new risk exposures within supply chains according to insurer ACE European Group (ACE).
Speaking at The Economist Risk Summit in London, Phil Wall - Senior Account Engineer at ACE, urged businesses to recognise that initiatives designed to reduce costs and streamline operations can create unforeseen side effects, such as increasing property loss and business interruption exposures within their supply chains.
He also called on businesses to consider adopting specific measures to mitigate these exposures. These include more rigorous risk identification, ‘best of class’ loss prevention standards in supply chains, greater communication with suppliers, and creating more robust alternative supplier arrangements.
The supply chain has been a key area of focus during the economic downturn, with companies adopting a number of different measures to achieve cost savings - in a recent survey sponsored by ACE, it was revealed that close to 60% of global businesses had negotiated lower prices with suppliers over the last year. Other measures taken by businesses include more outsourcing to third party suppliers, the placing of larger contracts with a reduced number of suppliers to achieve economies of scale, the consolidation of operations into large production facilities, the use of ‘mega’ distribution warehouses and a move to ‘just-in-time’ production.
Wall said: “Whilst such measures represent short-term gains on the balance sheet, businesses need to be aware of the potential impact of these initiatives and understand the additional longer term exposures that may come with these. The failure of one supplier in a small chain or an incident in a large scale warehouse creates very real and major risk exposures that could significantly damage a company.”
The use of suppliers in new and more cost effective territories is one area that highlights the scale of the new risk exposures. Wall explained: “These emerging markets can look like attractive options with cheaper labour costs. However, issues such as unknown loss prevention standards, political and infrastructure uncertainty, cultural differences and unforeseen natural hazard exposures can make them riskier and more costly options in the long-term.”
Wall called on the Summit audience of senior European executives involved in risk, strategy, finance and compliance across a broad range of industry sectors, to ensure the appropriate level of focus on the identification of new and emerging risk exposures is being applied within their organisations. He also urged businesses to demand “best of class” property loss prevention standards at critical facilities to help ensure that the supply chain is protected. In addition he advocated building stronger relationships, adopting a team approach with key suppliers to identify potential exposures and agree action plans to address them and identifying alternative suppliers to minimise the interruption in the supply chain.
Wall concluded: “Supply chain risk management needs more Board-level priority. Businesses cannot afford to underestimate the potential impact of these emerging risks.”
What do you think?
The drive to control operating costs and improve efficiencies by global businesses during recession has the potential to create new risk exposures within supply chains according to insurer ACE European Group (ACE).
Speaking at The Economist Risk Summit in London, Phil Wall - Senior Account Engineer at ACE, urged businesses to recognise that initiatives designed to reduce costs and streamline operations can create unforeseen side effects, such as increasing property loss and business interruption exposures within their supply chains.
He also called on businesses to consider adopting specific measures to mitigate these exposures. These include more rigorous risk identification, ‘best of class’ loss prevention standards in supply chains, greater communication with suppliers, and creating more robust alternative supplier arrangements.
The supply chain has been a key area of focus during the economic downturn, with companies adopting a number of different measures to achieve cost savings - in a recent survey sponsored by ACE, it was revealed that close to 60% of global businesses had negotiated lower prices with suppliers over the last year. Other measures taken by businesses include more outsourcing to third party suppliers, the placing of larger contracts with a reduced number of suppliers to achieve economies of scale, the consolidation of operations into large production facilities, the use of ‘mega’ distribution warehouses and a move to ‘just-in-time’ production.
Wall said: “Whilst such measures represent short-term gains on the balance sheet, businesses need to be aware of the potential impact of these initiatives and understand the additional longer term exposures that may come with these. The failure of one supplier in a small chain or an incident in a large scale warehouse creates very real and major risk exposures that could significantly damage a company.”
The use of suppliers in new and more cost effective territories is one area that highlights the scale of the new risk exposures. Wall explained: “These emerging markets can look like attractive options with cheaper labour costs. However, issues such as unknown loss prevention standards, political and infrastructure uncertainty, cultural differences and unforeseen natural hazard exposures can make them riskier and more costly options in the long-term.”
Wall called on the Summit audience of senior European executives involved in risk, strategy, finance and compliance across a broad range of industry sectors, to ensure the appropriate level of focus on the identification of new and emerging risk exposures is being applied within their organisations. He also urged businesses to demand “best of class” property loss prevention standards at critical facilities to help ensure that the supply chain is protected. In addition he advocated building stronger relationships, adopting a team approach with key suppliers to identify potential exposures and agree action plans to address them and identifying alternative suppliers to minimise the interruption in the supply chain.
Wall concluded: “Supply chain risk management needs more Board-level priority. Businesses cannot afford to underestimate the potential impact of these emerging risks.”
What do you think?
Wednesday, October 7, 2009
Corporate Treasuries Not Prepared for Unexpected Market Events
Posted by Mark Brousseau
At the AFP Conference in San Francisco today, Wall Street Systems (Wallstreet) released the survey findings of 46 of the leading US-headquartered Fortune 500 multinational corporate treasuries.
The top concerns were Counterparty Risk, 87% of respondents, and Cash Flow Forecasting with 28%. Startlingly, nearly 90% of corporate treasuries reported they still use manual processes such as spreadsheets to manage counterparty risk and cash flow forecasting. This means they are without the real-time view and information needed in uncertain environments. In the wake of the recent market collapse, manual processes are no longer acceptable for corporate treasury functions, according to survey respondents.
To further exacerbate the problem, Treasurers have traditionally relied on the credit rating agencies to provide their only measure of credit risk. Without question they can no longer rely on ratings as the only determinate of risk, and as a consequence they have cut their more risky exposures and moved to specific counterparties the government would view as ‘too big to fail’.
Treasurers are now in need of other tools to help them view and manage their counterparty exposure and ensure the group’s liquidity across the organisation, such as an integrated treasury management system – providing a real time view of exposure and liquidity on demand.
Mark Lewis, Director, Corporate Treasury, Wall Street Systems said: "Today the cost of making an investment in real time treasury technology, does not compare with the size of a possible loss caused by a failed counterparty. The opportunity to unwind the exposure prior to the failure could save the company millions, and is an essential point for proving the business case to the board."
The survey reveals that the once-accepted practice of spreadsheet management and other manual methods is no longer sufficient in today’s marketplace. Where treasury technology was once the provenance of mere cost savings, it is now required to provide an early warning system in the event of a market event and address shareholder demand and protect against large-scale failure.
At the AFP Conference in San Francisco today, Wall Street Systems (Wallstreet) released the survey findings of 46 of the leading US-headquartered Fortune 500 multinational corporate treasuries.
The top concerns were Counterparty Risk, 87% of respondents, and Cash Flow Forecasting with 28%. Startlingly, nearly 90% of corporate treasuries reported they still use manual processes such as spreadsheets to manage counterparty risk and cash flow forecasting. This means they are without the real-time view and information needed in uncertain environments. In the wake of the recent market collapse, manual processes are no longer acceptable for corporate treasury functions, according to survey respondents.
To further exacerbate the problem, Treasurers have traditionally relied on the credit rating agencies to provide their only measure of credit risk. Without question they can no longer rely on ratings as the only determinate of risk, and as a consequence they have cut their more risky exposures and moved to specific counterparties the government would view as ‘too big to fail’.
Treasurers are now in need of other tools to help them view and manage their counterparty exposure and ensure the group’s liquidity across the organisation, such as an integrated treasury management system – providing a real time view of exposure and liquidity on demand.
Mark Lewis, Director, Corporate Treasury, Wall Street Systems said: "Today the cost of making an investment in real time treasury technology, does not compare with the size of a possible loss caused by a failed counterparty. The opportunity to unwind the exposure prior to the failure could save the company millions, and is an essential point for proving the business case to the board."
The survey reveals that the once-accepted practice of spreadsheet management and other manual methods is no longer sufficient in today’s marketplace. Where treasury technology was once the provenance of mere cost savings, it is now required to provide an early warning system in the event of a market event and address shareholder demand and protect against large-scale failure.
Thursday, October 1, 2009
ERM ROI
Posted by Mark Brousseau
With widespread acceptance that deficiency in risk management was a leading contributor to the credit crisis, these could be happy days for Enterprise Risk Management (ERM) and its advocates. With that new-found popularity will come accountability though; a request that ERM proves its real worth. Ascribing a quantifiable value to ERM may be difficult – but not impossible as Mike Nolan of KPMG’s Advisory practice explains.
As a concept, Enterprise Risk Management has now been with us for some time yet the concerns over how to quantify its effectiveness refuse to disappear.
Many people have become accustomed to judging ERM in qualitative, ‘softer’ terms. In this regard, it’s hard to argue against its effectiveness, resulting as it does in enhanced risk identification and prioritization, a common risk language, improved risk and controls optimization, better risk monitoring and reporting as well as contributing to strengthening risk governance and culture.
However, in today’s currently cost-obsessed environment, assessment against intangible KPIs is unlikely to satisfy those business leaders intent on gauging exactly what the return on investment is; what value their current — or proposed — ERM program generates.
As more companies consider implementing ERM as a way of avoiding the risk management failures which precipitated the current crisis, the good news is that I believe ERM is quantifiable.Such quantification may not be easy; there’s no single formula and the results may not even be perfect — but surely this is preferable to the insistence that ERM can only be measured qualitatively. Such a reassurance might just convince a few more skeptics to head down the ERM route.
If you think about what ERM delivers, there are actually plenty of quantifiable outputs; decreased variability in financial results for example, as well as reduced hedging, insurance and capital costs. These equate directly to improved cash flow which, when coupled with a reduced discount rate (arising from reduced earnings volatility and an improved reputation within the investment community), results in enhanced company value. The metrics are there; it’s just a question of turning them into a final assessment which quantifies that all-important return on investment.
Let’s consider those metrics more closely, starting with capital costs first. With rating agencies paying increasing attention to companies’ ERM frameworks, deficiencies or over-performance in this area can be equated to a quantifiable impact on a company’s ability to access capital and on the cost of capital. Secondly, hard cost savings can be delivered by an ERM program which streamlines existing risk efforts and highlights redundant and inefficient risk activities (e.g. identification / assessment, aggregation and validation processes). Again, another quantifiable metric.
Insurance and hedging costs can be the most tangible cost elements in managing specific risks. ERM can help to optimize and reduce these costs by more clearly identifying underlying risk exposures, existing offsets and potential redundancies and inefficiencies.
Estimating earnings variability may be a complex task but can feasibly be undertaken both before and after ERM risk mitigation activities in order to demonstrate the impact and value of the ERM program.
Harder to quantify are the investment opportunities which can arise from ERM implementation but this does not mean the potential ‘up-side’ of ERM should simply be ignored. ERM enables companies to make smarter, proactive decisions, based on a better understanding of their current risk profile and their appetite for taking onboard more risk in pursuit of competitive advantage.
ERM is about optimizing risk in accordance with your risk tolerances and setting limits; not simply minimizing risk. Applying a risk lens and risk metrics to a business opportunity, in addition to the growth metric analysis, is likely to result in improved investment decisions. ERM can assist in identifying opportunistic areas of your business that would benefit from investment.
When thought of in these terms, the value of ERM looks far more quantifiable than has often been perceived. There is no simple formula for generating that final value but it should be an aggregate of performance in the areas mentioned above.
For too long, ERM has been considered solely in compliance terms, perceived similarly to existing internal audit, legal, environmental and finance compliance activities. Its presence was designed to assuage risk concerns from external stakeholders, directors and ratings agencies alike. It should now be seen in a more proactive light.
The credit crisis has refocused attention on to this area of business. ERM’s ‘standing’ in the risk world may have gone up but, with all expenditure now scrutinized down to the last dollar, it will have to properly prove its worth; something which it has traditionally struggled to do.
Thankfully, it may not prove as difficult a task as some would have us believe.
What do you think? Post your comments below.
With widespread acceptance that deficiency in risk management was a leading contributor to the credit crisis, these could be happy days for Enterprise Risk Management (ERM) and its advocates. With that new-found popularity will come accountability though; a request that ERM proves its real worth. Ascribing a quantifiable value to ERM may be difficult – but not impossible as Mike Nolan of KPMG’s Advisory practice explains.
As a concept, Enterprise Risk Management has now been with us for some time yet the concerns over how to quantify its effectiveness refuse to disappear.
Many people have become accustomed to judging ERM in qualitative, ‘softer’ terms. In this regard, it’s hard to argue against its effectiveness, resulting as it does in enhanced risk identification and prioritization, a common risk language, improved risk and controls optimization, better risk monitoring and reporting as well as contributing to strengthening risk governance and culture.
However, in today’s currently cost-obsessed environment, assessment against intangible KPIs is unlikely to satisfy those business leaders intent on gauging exactly what the return on investment is; what value their current — or proposed — ERM program generates.
As more companies consider implementing ERM as a way of avoiding the risk management failures which precipitated the current crisis, the good news is that I believe ERM is quantifiable.Such quantification may not be easy; there’s no single formula and the results may not even be perfect — but surely this is preferable to the insistence that ERM can only be measured qualitatively. Such a reassurance might just convince a few more skeptics to head down the ERM route.
If you think about what ERM delivers, there are actually plenty of quantifiable outputs; decreased variability in financial results for example, as well as reduced hedging, insurance and capital costs. These equate directly to improved cash flow which, when coupled with a reduced discount rate (arising from reduced earnings volatility and an improved reputation within the investment community), results in enhanced company value. The metrics are there; it’s just a question of turning them into a final assessment which quantifies that all-important return on investment.
Let’s consider those metrics more closely, starting with capital costs first. With rating agencies paying increasing attention to companies’ ERM frameworks, deficiencies or over-performance in this area can be equated to a quantifiable impact on a company’s ability to access capital and on the cost of capital. Secondly, hard cost savings can be delivered by an ERM program which streamlines existing risk efforts and highlights redundant and inefficient risk activities (e.g. identification / assessment, aggregation and validation processes). Again, another quantifiable metric.
Insurance and hedging costs can be the most tangible cost elements in managing specific risks. ERM can help to optimize and reduce these costs by more clearly identifying underlying risk exposures, existing offsets and potential redundancies and inefficiencies.
Estimating earnings variability may be a complex task but can feasibly be undertaken both before and after ERM risk mitigation activities in order to demonstrate the impact and value of the ERM program.
Harder to quantify are the investment opportunities which can arise from ERM implementation but this does not mean the potential ‘up-side’ of ERM should simply be ignored. ERM enables companies to make smarter, proactive decisions, based on a better understanding of their current risk profile and their appetite for taking onboard more risk in pursuit of competitive advantage.
ERM is about optimizing risk in accordance with your risk tolerances and setting limits; not simply minimizing risk. Applying a risk lens and risk metrics to a business opportunity, in addition to the growth metric analysis, is likely to result in improved investment decisions. ERM can assist in identifying opportunistic areas of your business that would benefit from investment.
When thought of in these terms, the value of ERM looks far more quantifiable than has often been perceived. There is no simple formula for generating that final value but it should be an aggregate of performance in the areas mentioned above.
For too long, ERM has been considered solely in compliance terms, perceived similarly to existing internal audit, legal, environmental and finance compliance activities. Its presence was designed to assuage risk concerns from external stakeholders, directors and ratings agencies alike. It should now be seen in a more proactive light.
The credit crisis has refocused attention on to this area of business. ERM’s ‘standing’ in the risk world may have gone up but, with all expenditure now scrutinized down to the last dollar, it will have to properly prove its worth; something which it has traditionally struggled to do.
Thankfully, it may not prove as difficult a task as some would have us believe.
What do you think? Post your comments below.
Tuesday, September 8, 2009
What Banks Do Best
Posted by Mark Brousseau
Forty-two percent of treasurers responding to Treasury & Risk's 2009 Cash Management Survey say their bank's best attribute is providing online access to information. Ninety-six percent of treasurers who responded to the survey say they are satisfied with the online services provided by their primary domestic bank.
A whopping 90 percent of respondents to the survey handle more than half of their cash management operations online, the survey found. Interestingly, just 33 percent of treasurers say they use a treasury workstation -- meaning most treasurers are using the Internet for their cash management.
What do you think? Post your comment below.
Forty-two percent of treasurers responding to Treasury & Risk's 2009 Cash Management Survey say their bank's best attribute is providing online access to information. Ninety-six percent of treasurers who responded to the survey say they are satisfied with the online services provided by their primary domestic bank.
A whopping 90 percent of respondents to the survey handle more than half of their cash management operations online, the survey found. Interestingly, just 33 percent of treasurers say they use a treasury workstation -- meaning most treasurers are using the Internet for their cash management.
What do you think? Post your comment below.
Monday, April 20, 2009
Economy Causing Fraud Concerns
Posted by Mark Brousseau
Two-thirds of consumers around the world believe that the current economic crisis has impacted their personal risk for ID theft or fraud, according to research conducted by Unisys.
The current global findings of the Unisys Security Index also show that fears about bank card fraud and identity theft have increased. These areas remain the top overall consumer concerns globally, where they have ranked since Unisys began the comprehensive biannual study in 2007, and the increase in ID theft fears reverses a small downward trend. In addition, the survey saw a 10 point increase in Internet security fears worldwide, which included near equal rises in concerns about online banking and shopping as well as computer viruses and spam.
“Our research is a wake up call to every organization that serves consumers since perception is reality, and security fears are clearly growing worldwide,” said Tim Kelleher, vice president and general manager, Managed Security Services, Unisys. “Not only do the vast majority of people believe that the current global financial crisis directly increases their personal risk of being an ID theft or fraud victim, but general concerns about online transactions, computer viruses, and meeting financial obligations all saw significant increases among consumers worldwide. While the economic environment is difficult, it is more imperative than ever that businesses and governments assuage these fears by investing in unified solutions that address all their security vulnerabilities.”
“We continue to see unique nuances around the world, which can provide insight for businesses and governments when developing security solutions and communicating to customers,” Kelleher said. “Enterprises need to take a more unified approach to security and consider both common worldwide threats and trends, and how these relate locally depending on market conditions.”
What do you think? Post your comments below.
Two-thirds of consumers around the world believe that the current economic crisis has impacted their personal risk for ID theft or fraud, according to research conducted by Unisys.
The current global findings of the Unisys Security Index also show that fears about bank card fraud and identity theft have increased. These areas remain the top overall consumer concerns globally, where they have ranked since Unisys began the comprehensive biannual study in 2007, and the increase in ID theft fears reverses a small downward trend. In addition, the survey saw a 10 point increase in Internet security fears worldwide, which included near equal rises in concerns about online banking and shopping as well as computer viruses and spam.
“Our research is a wake up call to every organization that serves consumers since perception is reality, and security fears are clearly growing worldwide,” said Tim Kelleher, vice president and general manager, Managed Security Services, Unisys. “Not only do the vast majority of people believe that the current global financial crisis directly increases their personal risk of being an ID theft or fraud victim, but general concerns about online transactions, computer viruses, and meeting financial obligations all saw significant increases among consumers worldwide. While the economic environment is difficult, it is more imperative than ever that businesses and governments assuage these fears by investing in unified solutions that address all their security vulnerabilities.”
“We continue to see unique nuances around the world, which can provide insight for businesses and governments when developing security solutions and communicating to customers,” Kelleher said. “Enterprises need to take a more unified approach to security and consider both common worldwide threats and trends, and how these relate locally depending on market conditions.”
What do you think? Post your comments below.
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