How outsourcing risk management functions can help an organization?

How outsourcing risk management functions can help an organization

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Establishing a robust global risk management framework has become a huge challenge for companies given the impediments on the technological and functional fronts and concerns over staffing and cost.

A dynamic regulatory environment has also made the task tougher. Interpreting various regulatory guidelines and incorporating them into models (BASEL II Pillar I activities), and putting in place a global risk management and regulatory overview structure (Pillar II and Pillar III activities) fall under this category. This would mean more emphasis on new technological and functional know-how. The already thin and overburdened internal teams that are tasked with managing various risks including financial risk, geographical risk, market risk, outsourcing risk and investment risk are coming under increasing strain because of this.

Hence, there is an urgent need for enhancing current global risk management teams by recruiting new talent which has the knowledge and experience in implementing various risk management projects. With every organization looking to establish such teams, risk management professionals have become difficult to find, leading to various scalability issues. The current volatile environment, which is forcing companies to cut cost and squeeze budgets, is not helping either.

So what now?

The solution lies in outsourcing certain risk management functions.

Outsourcing tactical initiatives (model development, model recalibration, system migration etc) and repetitive tasks (model validation, MIS reporting, risk support etc) with a thick layer of oversight from internal risk management teams can help organizations achieve cost efficiencies. This would also mean these risk management teams can now concentrate on assimilating new regulatory and functional know-how and preparing a road-map for achieving regulatory compliance. Proper oversight ensures decision-making and management functions remain with internal teams. Apart from regular repetitive risk management tasks, these teams can also outsource their current tactical initiatives. Most risk management firms in the field of risk management outsourcing and risk management consulting have a vast pool of dynamic and flexible professionals with technical, functional and project expertise. This talent pool comprises business analysts, quantitative modelers, and technology experts with exposure to various analytical and industry projects related to market risk management, credit risk management, operational risk management, enterprise risk management etc. Given their diverse experience, risk management outsourcing teams typically require limited or no training. These risk management service providers can gain momentum within a week and sometimes even take over from day one. These teams not only bring cost and operational efficiencies to the table but also offer flexibility due to the vast pool of talent at their disposal. In-house teams can deploy this talent pool on various tactical initiatives without worrying about issues such as scalability (scaling up or down) and employee turnover.

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