A career in managing risks

Finance students can make a career in risk management because risk is a function of finance, writes Vijay Prakash Srivastava.

All businesses carry risks. The type of risks and magnitude depend on the nature of the business and the scale at which it operates. Success is determined by many factors, one of which is how it manages and navigates through the risks.

We have seen how the principles under various disciplines of management science have helped in professionalising businesses. Every progressive business organisation makes extensive application of management tools in order to become efficient and derive better financial results. Risk management is a newer discipline added to management science.

The business environment is becoming uncertain daily, and the business's risks are also expanding. To deal with the situation, businesses are strengthening their risk management function with the help of trained professionals. In a decade or so, risk management has emerged as another significant management subject, and businesses have begun recruiting people who have mastered this subject.

According to definitions, risk is the probability of actual results being different from expected results and/or the probability of hurting people, systems or assets. Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties affecting a business or an organisation.

Let us take the example of banking. This is one of the most risk-prone businesses as it may have to face compliance, credit, interest rate, market, liquidity, operational, and reputational risks. Although these terms are self-explanatory, we’ll elaborate on some. Liquidity risk arises from a bank’s potential inability to meet payment obligations when they become due or only being able to meet these obligations at excessive costs. So, it relates to the fund crunch. Operational risk is the risk of losses from inadequate or failed internal processes, people and systems or external events. Operational risk has many forms and is most wide.

A risk manager’s job is to analyse the possible outcomes of different decisions to choose the most optimum results with maximum gains and minimum losses. They study the decisions and strategies minutely and critically before making their observations. A risk analyst or manager may be required to rely on extensive data in their day-to-day work. With their insight and use of logic, they can justify the rationale behind their recommendations. In the case of decisions on takeovers or mergers and acquisitions, the opinion of risk professionals carries a lot of weight. A senior banker told this author that clearance from their risk management department is mandatory before the bank could launch a new product.

Almost all risks have financial connotations, so in many cases, risk management is considered a function of finance. As such, finance students can easily think of making a career in risk management.

Two recent advertisements for risk professionals can tell us about the eligibility criteria. One is from UCO Bank, a public sector bank headquartered in Kolkata, which has 10 openings in the middle management cadre for its risk management function. The positions are open to those with a Bachelor's in Economics/Finance/Statistics or related fields, MBA/PGDM IN Finance/Risk Management, Chartered Accountancy/Cost Management Accountancy/Company Secretaryship. Professional certification such as CFA (CFA-Institute-USA), FRM (GARP), PRM (PRMIA), or any other certification in fields related to Risk Management from a reputed Institute is desirable but not mandatory,

The other is the National Pension System Trust, which administers NPS in our country. It has advertised for Assistant Manager and Manager (Risk Management). Here, the eligibility criteria is a postgraduate degree in finance, commerce, economics, statistics, econometrics, mathematics, or mathematical statistics. CA/ CFA/ FRM (or equivalent)/ CMA/ MBA / PGDM holders are also eligible. Diplomas in data science, data analytics, or data statistics and business analytics are given desirable requirements.

GARP, mentioned above, stands for Global Association for Risk Professionals. Its Financial Risk Manager (FRM) certification is considered valuable to join risk management profession. Similar is the case with the Professional Risk Manager (PRM) course conducted by the Professional Risk Managers’ International Association (PRMIA).

Few management institutes in our country offer specialisation in Risk Management in their MBA/PGDM curriculum. However, before you join, ensure it has valid approval from regulatory bodies like AICTE.

While a fresher with qualifications like those above may enter risk management, experienced people may also explore the opportunities if they have the required credentials and aptitude. For example, generalist officers qualified in finance or related subjects already in banks may seek to work in risk management. 

Work opportunities for risk professionals exist in banks, insurance companies and financial companies such as mobile wallet service providers, stock broking firms, fin techs, mutual funds and NBFCs, among others.

Two new specialisations are fast emerging in risk management. One is Cyber Risk, which is a subset of Information Technology (IT) risk. The other is climate risk, a growing concern for the United Nations and individual countries. With the study of any of the above, a specialised career in risk management can be possible with no particular exposure to finance.

These days, many corporations have created positions of chief risk officers (CROs). Some of you who decide to work in the area of risk management shall occupy these positions in the coming years.