The Energy & Resources industry is heavily dependent on assets, and the businesses that manage them are often confronted with regulatory compliance, safety and environmental threats in addition to old assets, maintenance issues, and budgetary limitations. Each of these aspects could have a significant impact on the external, operational, and strategic success of an enterprise.

A well-rounded risk management strategy is critical to protecting against these threats and ensure that a business can continue to meet the demands of its customers. This article outlines the most important aspects of asset and risk management:

Counterparty risk management is a procedure which focuses on ensuring important relationships, like prime brokers and counterparties to derivatives, clearing banks, and custodians are creditworthy. It also includes failsafe processes designed to guard against reputational or financial damage should these partners fail. This is achieved by vetting the vendors, and ensuring that the approval process does not only apply to the vendor, but also the service they provide.

Market risk is the potential for a decrease in value of the portfolio, and it is a problem that asset managers as well as risk managers have to deal with, but from slightly different perspectives. Portfolio managers concentrate on managing their market exposures to limit unintended market or factor bets, whereas risk managers seek to manage crowded trades and leverage, and to examine liquidity as well as cash flow.

A solid asset and risk management program is essential asset and risk management to preventing unexpected challenges and maximizing the impact of an organization’s assets. The three lines of defense governance framework is an effective method of identifying and reducing the risks that could impact an organization’s success.