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Focus on Risk

Published
  • January 18 2006, 12:34pm EST

With so much attention in the business intelligence world paid to top line initiatives like revenue generation and customer acquisition, using the technology to understand and manage risk might seem a lesser priority. Growing the business is something every businessperson and every IT person supporting business wants to be doing. Then again, risk is corollary and critical to any business environment, favorable or not. In an ideal market, companies would manage risk in a growth environment in order to secure gains and grow even further. This is the fortunate circumstance presently being addressed at GE Real Estate, one of the less glamorous arms of the General Electric conglomerate that is nonetheless delivering 7 percent of GE's overall profits. At the helm of the project, GE Real Estate CIO Hank Zupnick thinks that the data warehouse-driven risk management program at his company is a firm contributor to that 7 percent contribution.

At GE Real Estate, risk is measured across variables that address geography, borrowers and interest rates. For example, geographic risk addresses concentration, because a lender never wants to own too large a share of a given market. Then there's borrower risk. "Borrower risk might look at, 'do we have too much money with a borrower, do we understand the underlying financials of that borrower?" Zupnick says. In a similar way, market risk addresses sensitivities such as interest rates. "If we've got a fixed-rate loan out and the cost of funds goes up, a loan that's been profitable might suddenly become a lot less profitable," Zupnick says. "We can't necessarily change this if a borrower has signed on for a fixed term, but we can understand our exposure and perhaps apply resources to mitigate it."

All these risks are managed via the data warehouse, where the team works to head off threats before they become problems. The process is more about standard reports than it is an analytical exercise, though models are for trend analysis are built for certain scenarios. In the commercial space for example, GE Real Estate manages a number of properties in every large metropolitan area in the U.S. "We might be looking at occupancy trends," Zupnick says. "Where major tenants are up for renewal and the market has 5 percent vacancy, there's going to be upward pressure on rent. If the vacancy rate is 25 percent there will be downward pressure and we might be at risk." Such emerging patterns are flagged for action.

This kind of reporting requires people on the development side, but the productivity boon comes is on the user end. For example, the Portfolio Review reporting group at GE Real Estate might look at discrete markets such as 'all shopping centers in the Pittsburgh market' or 'all loans in the Chicago market over three years old.' "Before we automated this the asset managers and risk managers and salespeople spent a lot of time manually gathering the data, double-checking, compiling and publishing," Zupnick says. "Now it's all there on the reports so instead of having to research 43 properties in Pittsburgh, they can just go get that data for retail properties and within 20 minutes they'll have the information they need." With accuracy and definitions built into the process, people on the business side can focus on what they're paid to do, selling, managing risk, or otherwise growing the business.

Still, in the minds of frontline workers risk management is often seen as a control consciousness that is anathema to their individual skills. "If you were to speak to salespeople they would probably wish that the risk people would go away," Zupnick says. "In our business we sell money, which adds a huge risk. So a highly-motivated salesperson might push back on some of the risk processes, but the ones who have been here for many years understand that we've got to find the deals that make the most sense for the long run."

When it comes to making sense of the investment, ROI is easily measured on the cost side in terms of savings in report creation speed and accuracy, but gets a little slippery in terms of growth benefits. "We know that the salespeople use it to help them target particular markets where they have a better chance of getting a deal approved. Of course no salesperson is ever going to say they got a deal because of technology, they'll say it came from hard work and attention. That's natural, we're not going to quantify that piece, but the bottom line ultimately is that everything we do here is charged back to the business. We don't get a free ride, yet the business is willing to pay for more than we can handle. In my mind that's the ultimate validation, it comes from the bottom line and they're funding as much as we can build for them."

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