Even within a business, risk management means different things to different groups. Front-office and middle-office workers have distinctly different job functions, and their requirements of a risk management platform vary accordingly—it’s essentially the difference between “What is happening?” and “What could happen?”
“What is happening?”
Front-office workers, such as traders or portfolio managers, need to know in an instant their position, their trades that are open in the marketplace, their profit and loss and their market exposure. For them, a risk management platform must offer this real-time snapshot—or else they will be flying blind.
“What could happen?”
Middle-office workers, the people that examine trades and positions after they’ve happened, need to know what is possible. They need tools that allow them to run simulations, to see what happens to a portfolio or collection of holdings based on scenarios of market changes. This type of decision support requires more depth of data than a trader or portfolio manager would need to see, and takes more time to analyze.
While the two questions—“What is happening?” and “What could happen?”—are closely related, they’re also two different requirements. In my experience working in capital markets, risk management platforms meet only one of the two requirements. I’ve yet to see one that effectively addresses both front-office risk and middle-office risk.
What do you think? Have you seen a risk management platform that’s a magic bullet, that addresses both types of risk?