Quantitative skills and abilities are important building blocks for a career in financial risk management. But practitioners need more than knowledge of models and methods to succeed in the evolving world of the modern risk manager, where experience in operational risk and resiliency is in particular demand.
That’s one key conclusion to draw from GARP’s comprehensiveGlobal Practice Analysis (GPA) 2021 report. The GARP survey, which was compiled and analyzed over a period of 18 months, asked risk managers worldwide about all aspects of their jobs.
GPA 2021 is a cornerstone of GARP’s commitment to ensure the curriculum for its flagship FRM program remains effective at preparing future risk managers for their careers, says William May, GARP’s Global Head of Certifications and Educational Programs.
Operational Risk at the Forefront
The survey revealed an increased focus on operational risk and resiliency, but May doesn’t believe this is solely pandemic-related. He explains this area has been gaining prominence for some time, inspiring GARP to review and revise that portion of the FRM program in recent years.
Noting that operational risks aren’t easily modeled or managed and cover a lot of territory — from, for example, cyber and IT risk to rogue trading, third-party risk and conduct risk — May suggests organizations have become increasingly aware of these time- and resource-consuming threats. “Even when pandemic issues abate, operational risks will remain,” he opines.
While many organizations are still trying to get their arms around operational risk, May elaborates, more traditional risk types like market and credit benefit from a longer history and greater modeling confidence. Still, he says, these more established risks are far from “conquered.”
Advice to Aspiring and New FRMs: Be Versatile
Survey participants emphasized the importance of communicating with relevant stakeholders – including supervisors, the board, and regulators. Indeed, the GPA 2021 data shows communications skills being valued most by highly experienced risk managers, suggesting they could be a key to career advancement.
May says this speaks to the need of employers for versatile risk managers who can proactively identify risks and spot limitations of models. Ideally, risk managers should not only recognize potential problems before they become unmanageable but also be skilled at communicating their analysis – both internally and externally.
While the FRM is designed to impart the core knowledge a risk manager will need over the course of a career, May interprets the survey data as underscoring the importance of keeping one’s skills current and relevant. “Being able to help your organization handle known risks, as well as those yet to emerge, is an essential challenge for risk managers,” he says.
The GPA 2021 data also shows that to add real value to their organizations, risk managers must avoid becoming siloed. May says that even if you spend most of your time in a specialty, it’s important to maintain a holistic view of risk and to keep up with new tools and techniques.
Artificial intelligence and machine learning are certainly among the new tools gaining a foothold in risk management. Since many models today make use of those disruptive technologies, risk managers who understand complex models are in demand. Indeed, FRMs who know how to assess AI- and ML-driven models can help their employer properly manage risks without resorting to overly risk-averse actions that might harm profitability. “A good risk manager needs to understand not only the model, but its potential limitations,” May concludes.
Tod Ginnis is a content specialist at GARP. He is the author of a GARP blog that is aimed at early-career risk managers and professionals aspiring to earn their Financial Risk Manager (FRM) certification.