Risk Tolerance Clarified: Connecting risk and financial performance, supporting growth

The challenge

After WTW analysis, a consumer staples organization recognized it was not applying risk impact scales consistently. In addition, these impacts were not connected to financial targets, potentially undermining future organic growth and access to capital.

How Risk Tolerance Clarified empowered the solution

• Key stakeholders created a core working group comprised of risk and treasury functions and used Risk Tolerance Clarified to establish a new impact scale aligning financial priorities with identified, quantifiable metrics that best represented each priority. These included external guidance metrics, for example earnings per share (EPS), and covenant metrics, such as net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA). The working group also established meaningful thresholds, for example, the EPS falling below a set level.
• Using Risk Tolerance Clarified the organization could then see how different risk and investment measures would impact the financial priorities under multiple financial scenarios whenever was required.
• The organization also used Risk Tolerance Clarified to set the level of shortfall that would mean delivery on given financial priorities would be imperiled.
• The dynamic and on-demand nature of Risk Tolerance Clarified has helped ensure the organization’s strategy and decision-making process is informed by data and insight, both at a business unit and corporate level.

The outcome

• Articulating risk in terms of impact on financial priorities, such as avoiding constraints on organic growth and inhibiting access to capital, elevated engagement between stakeholders in the risk and treasury functions and senior executives. This helped drive unanimous consensus within the risk committee on recommendations to the executive leadership team for risk reduction investments.
• Representing the impacts of risks in terms of key financial priorities aligned to corporate objectives elevated the executive leadership’s confidence in its decisions.
• Leveraging financials when evaluating the organization’s risks and opportunities has established an effective, common baseline for comparing the exposures and openings into the future.

Products

Risk Tolerance Clarified

Provides a customizable financial benchmarking package for creating risk tolerance statements.

For further information please get in touch.

Authors

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Lisa Lipuma

Director, Risk and Analytics

email Email phone +01 212 915 8012

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Mary Catherine Stabler, CFA

Director, Core Analytics

email Email

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Contact

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Ben Fidlow, FCAS, MAAA

Global Head of Core Analytics

email Email phone +1 212 915 8709

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