Finance and risk functions cannot work in siloes anymore. Although CFO’s agendas remain focused on performance management, the definition of “performance” is broadening.
Firstly, it is becoming more and more difficult to dissociate performance from risk. Today, performance and balance sheet optimization are not only focusing on improving earnings and capital ratio, but also ensuring their robustness. Risk concepts such as uncertainty and volatility are getting embedded in financial planning process, likewise risk appetite and scenario-based analysis.
Secondly, performance management is understood beyond financial results to incorporate both financial and non-financial performance. Past events and the last financial crisis evidence that non-financial risks can affect negatively not only the financial performance of an institution, but also its overall franchise value and growth.
In this sense, cascading risk appetite and risk adjusted performance objectives is a prerequisite for balance sheet optimization, after comparing stand-alone risks and performance on capital, to allow for efficient allocation of capital resources and ensuring engagement at all levels of the organization.
Published on: June 2016
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