Business Case Definition for Counterparty Risk
Before initiating a large scale programme of change around counterparty risk, it is often important for our clients to clearly set out the business case for the initiative. This may be where a bank is looking to rationalise its limit management process, or it may be where a bank is looking to move to a new level of sophistication in the way it calculates counterparty exposure. In any such scenario, gaining management buy-in or approval to the level of investment required to reach the target end state is often critical to success.
We have defined a structured methodology to counterparty risk business case definition. This involves a transparent assessment of the costs involved in undertaking the initiative and the identification of the benefits to be gained. These can then be used as a means of validating the long term investment required for the programme of work.
Our counterparty risk business case definition methodology incorporates assessment of the following areas:
- What are the internal risk management benefits to be gained from transforming the counterparty risk process? e.g. exposure reduction
- What are the regulatory and capital benefits to be gained? e.g. capital reduction, alignment with Basel III requirements etc
- What are the control benefits to be gained? e.g. through pre-deal checking capabilities
- What process efficiencies will be gained by any proposed automation? e.g. through a streamlined limit allocation process
- What are the estimated project costs across both business and technology teams?
- What is the estimated ongoing Total Cost of Ownership for any technology solutions involved?
A key aspect of our approach to this is utilisation of our Counterparty Risk Benefit Assessor tool.
For more details on our wider approach to business case definition, see our overall business case definition page.