IQExpoMan

In Risk Analytics and in Strategy one of the key steps in formulation and implementation is to understand the exposure that the organization has to different types of risks. We create the solution for understanding what the risks can be and the possible indicators to evaluate the severity and expected adverse effects in the organization’s performance.

This framework of analysis is under the premise of creating an ongoing system that is learning based on the new knowledge that is created by risk analytics (qualitative and quantitative). The framework assumes that the financial and non-financial organizations’ exposure is related to the strategy formulation and its implementation. The financial system in this risk analytics approach is a reflection of  where resources are allocated and used. In the figure the first column of is associated with the definition what the organization wants to do, and the risks involved; the second column is  related to what is necessary to deal with risks; and the third column refers to the implementation using the risk analytics methods and techniques. The framework comprises:

1. Strategic and Tactic Risk Identification Exposure: This is the business environmental study of the market selecting what is strategic (diversification of the industry and digitalization in the organization) and what is tactic (construction building non- infrastructure development and sales, loans and deposits concentration) for the organization.
2. Strategic and Tactic Risks Monitoring: Monitoring is about the construction of the risk management information system that supports the creation and maintenance of risk measurement. The monitoring system identifies not only possible risks and its effects, but also the risk control and mitigation actions.
3. Strategic and Tactic Risk Controlling: Identification on how control actions that can support risk mitigation and use as strategic competitive advantage of the organization (How location is appropriate to industry diversification, digitalization, etc.)
4. Specific Strategic-Tactic Risk to Study: Concentration a chain of risks of strategic goals and tactics. For instance, digitalization as strategy and the risk related to the lack of human talent. Discover actions to foster new generations to develop mindsets of digital societies development, actions to deal with intelligent service systems in the society, transportation, communities living, financial system etc.)
5. Measurement System – Key Risk Indicators: Once the selection of risk to concentrate on and the chain to follow the information system associated with risk indicators and control is required. The system is built under the constraints of the data available (Data integration flow from national, provincial and to city levels the same as aggregation levels and historical data availability)
6. Data Gathering: Data resides in several repositories. The level of aggregation and history availability are not standard in several sources. The information system requires two main stages of data: (i) data that is raw and represents transactions, values of the variables of the financial system; and (ii) data that is created based on the outputs of the risk analytics work.
7. Modeling Process – Knowledge Creation: Risk analytics creates knowledge based on the data processing using models that learn. Modeling is a process to follow step by step to improve accuracy, but at same time scope. In this paper the illustration with mortgages is clear, to have an outlook of variables affecting mortgages, sales of real estate, etc. which is a means to maintain value of the family investments.
8. Contextualization – Meaning: Modeling outcomes are not meaningful if they are not under a context or they are not in the direction of leading actions.
9. Evaluation – Feedback – Calibration: The full system is in a continuously improvement process that can digest more risk and data to analyze. It assesses the accuracy, scope, and capabilities to understand more about what is happening in financial organizations, our organizations and possible impacts in the society that affect moving ahead presently and in the future.

The framework implementation depends on advances in risk management and analytics. In this section of the paper the analysis performed is mainly related to strategic risk. The ongoing evolution of the Enterprise Risk Management (ERM) concepts to develop capabilities to deal with strategic risks as Andersen T.J. and Sax J., (2020) indicated that risk has been a part of the management analysis based on understanding exposures and the internal and external socio-economic conditions that can affect organizations performance.  The knowledge of Strategic Risk Management as a way of concentrating on the management of strategic risk is taking principles from ERM and the multiple fields involved in the understanding of risk. In a community or a city the strategic risk is related to the possible events/circumstances that can affect the society development and the standard of live of stakeholders. The risk events can come from changes in business, financial risks, natural risks, etc. Risk Exposure analysis requires to understand the nature of which risks can be insured or transferred, and risks that are present and require mitigation, but cannot be insured or transferred. In this regard, as an example the particular risk of the variation of investment results in the real estate market associated with mortgages. Mortgage development is associated with capacity of the society to invest, to acquire house, allocation of financial institution resources, competition, use of non-banking systems of financing, etc. As mortgages are associated with the urban and rural districts development, there is an important concentration of resources in construction sector and at the same time it can be important to follow and keep ongoing surveillance of real estate bubbles, difference between square meters built and square meters sold, etc.  Changes in business, digitalization, competition, etc. are possible factors affecting the mortgage market, changes in the consumption habits, migration from rural to cities and from cities to rural areas, etc.

The society/community as an organization can be affected by risk events. Risk events can affect the flow of resources in an organization, the conditions of life and the possibilities to improve economic conditions. This article follows what Miller and Bromiley (1990) identified as the nine measurements of risk related to strategic management, which can be concentrated on specific risks. In Miller and Bromiley (1990) study they presented evidence that “income stream risk reduces subsequent performance and that this influence exists across industries and performance levels.” Additionally, they concluded that the influence of strategic risk has variation according to industries and their levels of performance. In a city or community income stream risk can affect in the levels of returns of investment of builders, financial institutions if sales are not meeting the expectations and assets turn over is reduced. Frigo and Anderson (2011) pointed out regarding Strategic Risk, “Strategic risks are those risks that are most consequential to the organization’s ability to execute its strategies and achieve its business objectives.” Thus, risk exposure analytics is based on creating the risk exposure analytics information-knowledge system because “Risk Management is frequently not a problem of a lack of information, but rather a lack of knowledge with which to interpret its meaning” (Marshal et al. 1996).

The risk exposure concept is used in financial business-insurance as Bouska (1989) commented “The business of insurance presumes an exposure to loss: if there is no possibility of a loss, there is no need for insurance. However, if an entity does have an exposure to loss, it is desirable that the cost of transferring that loss to another party be proportional to the expected loss, which is assumed to vary with the size of the exposure base. Thus, the selection of an exposure base, which quantifies and proxies for the exposure, is a fundamental step in the insurance process.”