Three Lines of Asset and Risk Management for the Energy & Resources Industry

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The Energy & Resources industry is highly asset-intensive, and the companies that manage them are often confronted with compliance issues as well as environmental and safety threats as well as old assets, maintenance issues and budgetary constraints. Each of these aspects can possibly have a significant impact on an organization’s performance successful external, strategic and internal success.

A comprehensive risk management approach is crucial to protect against these risks and ensuring that the company continues to meet the needs of its clients. This article provides a list of the most important areas of risk and asset management:

Counterparty risk management is a process that focuses on ensuring key relationships, including prime brokers, counterparties to derivatives, clearing banks, and custodians are creditworthy. It also has failsafe procedures that are that are designed to safeguard against financial losses or reputational harm if these partners fail. This is accomplished by vetting vendors and ensuring that the approval process extends not only to the vendor, but also to the particular service they offer.

Market risk is the potential for a decrease in value of the portfolio, and it is a problem that both asset managers and risk managers are concerned with however from slightly different perspectives. Portfolio managers manage their market exposures in order to minimize unintended bets on markets and factors, while risk management focuses on managing crowded trades, leverage, liquidity, expected volatility and cash flow.

A solid risk and asset management plan will help a company avoid unexpected challenges and maximize the benefit of its assets. The three-line governance framework is an effective tool for identifying and minimizing the risks that can affect the performance of an organization.