To Business Corporations
Needs for Risk management
Corporate managers are always urged to make the right decision, among many options, that is most likely to help achieve the corporate strategy by reviewing the anticipated effects (i.e. return) and the risks involved. Today, economic globalization and rapid change of business environments increasingly complicates the crucial factors to realize their strategy. Under these circumstances, companies cannot assume risks just by using their intuition, they need to actively use quantitative analysis technology.
Risk management Process
Risk management can be compared with flying a plane, in which pilots use not only their five senses but also information from measuring instruments. Management in the modern age requires this cycle, where pilots obtain numerical information to learn about the outside environment and their own position, and then make reasonable judgments on how to fly the plane in accordance with that information.
The risk management process is generally structured in steps consisting of recognition, measurement, monitoring, control and reporting. The business characteristics and management targets must be reflected in this process to construct an effective risk management framework.
We offer consulting services regarding risk management on the basis of technologies and experience that we have accumulated in the risk management of financial institutions.
In some cases, for example, we may break down the risks involved in business and may focus on the risk of fluctuations in prices or sales & purchases quantities. In other cases, we may focus on the market risks, such as interest rate, exchange rate and commodity prices. Then, we quantify the identified risks and anticipate and quantitatively analyze the possible options to support decision-making and operations.
For specific cases, see the section "Business Risk management." Also, we offer approaches to control multiple risks in an integrated manner. Those approaches include ALM (Asset Liability Management) which controls fund-raising and management in an integrated manner, and enterprise risk management which addresses business risk and financial risk in an integrated manner.
In addition, we can evaluate stock warrants, preferred stocks, structured fixed income portfolio and assets.
For solutions for business entities that are also institutional investors, see the section "To Institutional Investors."
Risks surrounding a company include as follows.
Product Price Risk
Almost all manufacturing companies are exposed to the risk of sales fluctuations caused by product price fluctuations.
In addition to companies that directly use the raw materials such as oil and gas (e.g. utility, petrochemistry industry or transport businesses), companies that are affected by fluctuations in the price of grain, including food manufacturers, increasingly place emphasis on commodity risk management.
Interest Rate Risk
Companies that raise funds by taking on debt or whose assets are sensitive to interest rates are exposed to the risk of fluctuations in their profits caused by fluctuations in interest rates.
Exchange Rate Risk
Companies engaged in the import and export of goods are exposed to exchange rate risk, which is one of the risks that can be controlled in the most advanced manner, as well as interest rate risk.
Not only companies that lend money or provide guarantees, but also companies that collect receivables and clear bills face credit risk, which means non-recovery of funds due to a deterioration in the credit status of payers.
In addition, companies face a wide range of risks, including risk relating to internal governance, compliance, financial reporting, disasters, and IT systems.
(Refer to the sections "Market Risk Management & ALM" and "Credit Risk Management.")