Analytics, Risk Management, Modelling, Software

I offer services in the areas of analytics, risk management, modelling and software (ARMS). This page gives information on each of the four areas.

The ARMS offering applies across industries and, indeed, beyond the private sector. I also offer insurance services based on more than 20 years of insurance experience, especially in the protection and reinsurance sectors. You could also just throw a very tough problem at me – I love them!

Analytics: risk and otherwisepractical, savvy and robust

I've been doing real world analytics since 2002 – way before it became "the next big thing". Projects include:

  • Risk and retail pricing at a market-leading insurer
  • Data-driven underwriting and new business processes at a large reinsurer
  • Building a competitive MI facility using webbots and what used to be called "screen scraping"

My work is:

  • Practical: I'm your man if you're dipping your toe in the water and don't want to be sold a "big data" project or system.
  • Savvy: I've found rogue traders. I focus on commercially valuable insights. I've seen what works and it's not always so hard.
  • Robust: I can work with spreadsheets, databases or a combination of the two. Here's a toy example.

Analytics is fundamentally about making better decisions through enhancing knowledge: uncovering then exploiting new factors and relationships. There is a strong relationship to risk management via risk-adjusted returns and pricing. Analytics is absolutely not about backward-looking voluminous reports.

Big or small, let's talk about your project.

Risk managementthree lines of attack

Get more out of risk management. Working alongside your team, we can together supplement the 'three lines of defence' with 'three lines of attack':

  1. Loss reduction: the focus of much traditional risk management e.g. ISO31000, COSO.
  2. Uncertainty management: with particular emphasis on improving knowledge.
  3. Optimisation: playing off risk and reward - as effective for supermarkets as insurers.
There are three major business applications of risk management: loss reduction, uncertainty management and performance optimisation. The combination of all three is enterprise risk management.James Lam – the world’s first Chief Risk Officer

To be specific, here are just two things I've done.

[1] Risk framework developmentit's all in the mind

Companies relatively new to risk management may be unsure how to start. More experienced firms can get stuck in a governance rut, with risk management as an overhead. It doesn't take long for risk management to feel like hard slog: all work and no value. I can help you escape the pit.

I can help you build many types of risk framework. If you're feeling under pressure regarding the quality and extent of your risk documentation (policies, processes, risk appetite etc) I can help you put in place something which will stand up to regulatory scrutiny. I've been through ARROW and can help with PRA/FCA overlap.

I can help you with a framework which reflects the reality of and your objectives for risk management. As an example I've built 4A is a minimalist risk framework. Easily understood, governance-lite, with a focus on action and better decision making, you can make 4A the operational core of a more governance-heavy framework.

Summary: the 4A approach covers governance but targets stakeholder value and the management of uncertainty as a competitive "under-the-radar" weapon.

The 4A framework

Governance: a robust base and speedy delivery

  • Articulation Includes your objectives for risk management and the value derived from it. First class delivery.
  • Administration Save time, money and brainache – just some of the benefits from using our online risk register.

Contact us if you're an insurer needing Pillar II and ORSA support or a FTSE 350 company working through the 2014 changes to risk guidance in the UK Corporate Governance Code. Stay one step ahead of your auditor.

From balance sheets and regulators to value and stakeholders

Practical building typically starts by seeking to improve what's there. Sometimes there are specific challenges e.g. risk assessment blunders which need "debugging". In extreme cases, especially when motivated by regulatory intervention, more dramatic action may be required, and I can work sensitively with you and your team.

An offering for each "A"

Framework itemOffering
Articulation Why: a vision and plan for risk management – close the gap. How and who: a process, framework and policies. How much: a risk appetite.
Administration RECAL turns your Excel-based approach into an effective online risk register, based on years of building and using risk management tools.
Assessment MODEL brings together smart ideas e.g. big improvements to probability-impact risk assessment. Plus ORSA process and report for insurers.
Action FAB-testing targets strategic and financial decisions, with uncertainty-based improvements to RAROC, the Balanced Scorecard and more.

[2] Risk register developmentmore value than you would imagine

There are four obvious stages of risk register development. Probably not all will be relevant to you. But the first stage will be – it's the most important.

I have developed an online risk register RECAL, which implements all of 1-4. But we can stop at any stage:

Status quo

  1. Failing. As implemented across all three sectors, the average risk register is conceptually and practically flawed. Worse, it is useless for Boards.
  2. Looking. You can simply read the risk register and risk assessment material on this website. You might be able to fix many of the flaws yourself.

Hire me

  1. Explaining. You can hire me to help you bring light to the nonsense which risk registers can all-too-easily become.
  2. Implementing. I can help improve your (e.g.) Excel risk register – as agreed in (1). I can do this at your side or remotely.
  3. Excelling. I can take your Excel risk register, making it easier to update, share and interrogate, by incorporating a database back end.
  4. Leading. And if you want the full fat web-based solution I have one of those, which can be rapidly tailored to your needs.

If you have a risk register problem I can make it all go away. And of course, in good risk management fashion, we can always upgrade later.

Explaining: getting the key concepts right

I confidently promise you: your risk registers can be dramatically improved. Here are just a few "low-tech" improvements:

Coming soon: a suite of articles on how to get value from risk registers, avoiding them being the worm at the heart of risk management.

Implementing: low-tech changes to your risk register

This can be quite an easy step – sometimes just adding another column to Excel and populating it. But risk register studies show there's a lot of work to be done.

Stage 3: simpler sharing and updating – database back end to Excel

This stage can purely focus on the back end or upgrade the front end too, depending on what you are trying to achieve.

Upgrading the front end. Although Excel is a superb tool for the high end user, non-experts can get confused: where should data get entered? What happens if I overwrite formulae? What if I want to undo a change? There's a reason that shopping on the web doesn't look like Excel. A front end upgrade might:

  • Pull up the information to be updated in a special area, rather than expecting the user to find it in a certain range of cells.
  • Enable simple create/retrieve/update/delete ("CRUD") functionality in a simple interface, making it clear what values are allowable.
  • Broaden the focus: not just risks but controls, events and actions – without having to navigate around Excel tabs.

Upgrading the back end. This involves installing a database behind Excel and connecting them, so that changes to Excel update the database. It may look as though data is stored in Excel, but fundamentally it's in the database: "one version of the data truth". Upgrading the back end enables us to:

  • Avoid merging lots of spreadsheets from different departments to get the company risk register.
  • Easily compare values – e.g. "risk scores" – over time, without having to open multiple spreadsheets.
  • Keep a full audit trail, so that the register can be "rolled back" to any point in the past if required.

Stage 4: ultimate sharing – a web-based solution

A web-based approach gives more flexibility than is possible with Excel. You can share your risk register beyond your office and organisation. Subject to appropriate permissions and any competitive constraints, sharing can also go beyond your organisation. The UK's NHS could, for example, share its many tens (hundreds?) of risk registers, with the aim of investigating the commonality of risks and the effectiveness of operational and other controls. Best practice indeed.

Modellingprojection and optimisation

Modelling supports faster and more evidence-based decisions. I can help with three types of model:

[1] Statistical optimisation models and techniques

We can use these and more basic techniques to estimate values of items which are important to us e.g. customer retention rates.

  • Sometimes we want single estimates of a set of probabilities, though even there we must be careful. Sometimes the probabilities varying according to certain factors (e.g. mortality rates grow at a compound rate as people age) and a model can reflect this structure. We then apply statistical techniques such as maximum likelihood estimation to provide 'good' estimates of the probabilities, informed by the model and the data.
  • Sometimes we want to estimate variation of a set of probabilities. So, for example, we may want to understand how demand for particular supermarket goods varies from day to day. Some of this may appear to be 'random variation', but we may also be able to profitably identify explanatory factors.

[2] Decision models

Often this comes down to setting the level of one variable (e.g. price) to maximise the expected value of another (e.g. profit). Decision models may incorporate cashflow projections, as noted below, but other optimisation techniques may also be used. Examples of decision models:

  • What proportion to invest. One way of tackling this is the (in)famous Kelly investment criterion.
  • How much stock to hold. This is known as the Newsboy problem and it has many generalisations.
  • Setting an appropriate level of capital. Capital optimisation is well known to banks and insurers due to their active taking of 'risks'.

[3] Cashflow projection models

Corporate valuation and pricing models are a traditional actuarial strength, motivating many actuaries to works with organisations with long term liabilities such as insurers and pension schemes. These models can take probabilities as inputs, allowing for variation or not. They are used to make decisions e.g. to set prices so that a certain profit is achieved at a given level of sales. They are also used for monitoring and reporting purposes e.g. how customers are expected to 'defect' over time.

Model risk and performance

I can also improve performance of existing models and reduce various forms of risk, using robust tools and techniques:

  • The risk that models may not incorporate all the relevant factors appropriately, through design or implementation.
  • In particular the risk that errors are subsequently introduced, accidentally or otherwise.
  • Seriously slow models i.e. those whose performance significantly and observably impacts business.
  • Subtly slow models e.g. when Excel models take more than a second to produce results users become distracted and performance suffers.

Softwaretools with less risk and more performance

Since 2001 I've built software tools, using Excel, VBA, databases and the web, going beyond my toy example. These include an online risk register, online insurance quotation systems, debt management systems and a stock control system. If your software needs a little more love – tough or not – contact me.

Forthcoming white papers

Three papers will have particular connections to software. Sign up to be informed when they are published.

  • Analytics: pulling the bible apart
  • Models: How to get less risk and more performance
  • Software: Excel on steroids – solution or problem?
© 2014-2017: 4A Risk Management; a trading name of Transformaction Development Limited