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As the use of big data is a documented phenomenon across corporate America, risk analytics – that is, using analytics to collect, analyze and measure real-time data to predict risk to make better business decisions -- is also becoming more popular.
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That's according to Sanjaya Krishna, U.S. digital risk consulting leader at KPMG in Washington, D.C.
By using risk analytics software, CFOs can improve operational efficiency and keep their companies' exposures to acceptable risk. But where exactly does a CFO go to "get" risk analytics tools?
The search for risk analytics software
"Risk analytics is a fairly broad term, so there are a number of things that come to mind when we talk about risk analytics," Krishna said. "There are a number of specialized risk analytics products. There are also broader analytic packages that can … 'check the risk analytics box' to a certain extent, though the package isn't built to be a risk analytics solution."
There are products, such as KPMG Risk Front, that focus on providing customized risk analytics based on public internet commentary, Krishna said. And KPMG's Continuous Monitoring product provides for customized risk analytics based on internal transactional data.
Rajiv Shahsenior solutions architect, GigaSpaces Technologies Inc.
There is also a number of established enterprise governance, risk and compliance packages that provide companies a way of housing and analyzing all sorts of identified risks at the enterprise level or within certain business areas, he said.
Finally, there are highly specialized, industry-specific risk analytic tools, especially in the financial services industry, according to Krishna.
Risk analytics tools, regardless of the industry, have been around for a while, said Danny Baker, vice president of market strategy, financial and risk management solutions at Fiserv Inc., a provider of financial services technology based in Brookfield, Wis.
"They have historically been purposed for less strategic items -- they were seen as just a checkbox to please the regulators," he said.
Now, though, risk analytics software has transitioned and evolved from tactical, point solutions to helping organizations optimize their strategic futures.
"Especially for banks and credit unions, risk analytics tools are focused more on strategy and the need to integrate with other departments, like finance," Baker said. "The integration across departments is key."
But it's not just the tools that are important.
Sometimes a company may even use a database as a risk analytics tool, said Ken Krupa, enterprise CTO at MarkLogic Corp., an Enterprise NoSQL database provider in San Carlos, Calif.
Taking the broad approach to the data quality issue
"There are, indeed, specialized products, as well as packages that play a role in risk analytics," Krupa said. "These third-party suites of tools do a lot of the math on where there are risks, but if the math is based on bad or incomplete data, risk cannot be adequately addressed."
What's more, oftentimes, a company doesn't have a clear picture of the quality of the data that it's working with because making that data available from upstream systems depends on complex extract, transform and load (ETL) processes supported by a large team of developers of varying skill sets, he said.
Therefore, there's actually an inherent risk in not having transparent access to a 360-degree view of the data -- mainly caused by data in silos. However, leveraging a database that can successfully integrate the many silos of data can go a long way toward minimizing data quality risks, according to Krupa.
"You may not initially think of a database as a risk analytics tool, but the right kind of database serves a critical role in organizing all of the inputs that risk analytics tools use," he said. "The right type of database -- one that minimizes ETL dependency and provides a clear view of all kinds of data, like that offered by MarkLogic -- can make risk analytics better, faster and with less cost."
Anand Venugopal, head of StreamAnalytix product management and go-to-market at Impetus Technologies Inc. in Los Gatos, Calif., concurred with Krupa that bringing all a company's data into one place is critical to enabling better risk-based business decisions.
Since many organizations are in the process of modernizing their infrastructures -- particularly around analytics platforms -- they are moving away from point solutions if they can, he said.
The new paradigm is bringing together all the relevant information -- if not in one place, at least, having the mechanisms to bring it together on demand -- and then do the analytics together in one place, Venugopal said.
"So, what is beyond proven is that analytics and decision-making [are] more accurate not with more advanced algorithms, but with more data, i.e., diverse data, and more data sources, i.e., 25 different data sources as opposed to five different data sources," he said.
It all points to the fact that even with moderate algorithms, more data gives organizations better results than trying to use "rocket science algorithms" with limited data, Venugopal said.
"What that means to enterprise technology is that they are building risk platforms on top of the modern data warehouses, which combines a variety of internal and external data sets, and trying to combine real-time data feeds -- real-time triggers, real-time market factors, currency risk, etc. -- which was not part of the previous generation's capabilities," he said.
Single-point products can only address limited portions of this because that's how they're designed; enterprise risk can only be covered with a broader approach, according to Venugopal.
"I think the trend [in enterprises] is more toward building sophisticated risk strategies and applications, and they're building out those and they're using core big data technology components like the Hadoop stack, like the Spark stack and tools like Impetus' Extreme Analytics," he said.
Custom risk analytics software and other considerations
Organizations looking to implement technology to mitigate risk have to consider a few additional things, including the usability and feature set, according to Rajiv Shah, senior solutions architect for GigaSpaces Technologies Inc. in New York City.
"For instance, high-volume traders need a solution that won't interfere with the data sync that is critical to being up to the microsecond," he said.
A product that offers multilevel dashboarding is also key, according to Shah.
For example, the data a CFO needs to know is far different than, say, what a risk or compliance officer needs to know, he said.
"Enterprises should consider a solution that takes these differences into account, making sure that a dashboard can become detailed and granular, while also offering a 50,000-foot view," Shah said. "And a strong risk mitigation strategy and tool set should be able to identify and simulate a wide range of scenarios."
According to Fiserv's Baker, it's important that a risk mitigation technology doesn't hinder a company's regular operations.
"For larger organizations, it often becomes critical to build your own solution to meet the needs," he said.
Mike Juchno, partner at Ernst & Young Advisory Services, agreed that there is a custom tool component to risk analytics.
"Many of our clients already have these tools -- they're some sort of predictive analytics tool like SPSS, like SAS, like R, and some visualization on top of them, like Tableau or Power BI," he said. "So, we are able to build something custom to deal with a risk that may be unique to them or their industry or their particular situation. So, we typically find that it's a custom approach."
When it comes to looking for an off-the-shelf product, CFOs often hear about risk analytics tools from their peer-to-peer organizations. These groups come together to share information about tools.
"Of course, you're going to also look toward other companies or competitors that are doing risk management and performance management well and see what tools they have in place," Baker said. "The most high-performing clients I see embed their tools into not only solving current risk, but also expecting and forecasting future risk."
Although an organization can go to Fiserv and ask for a menu of risk analytics tools, it's more successful if both the company and Fiserv drill down into what the organization is trying to accomplish and customize the tools from there, according to Baker.
Most organizations want to make better strategic decisions, as the challenges of growth are greater now, and improve their forward-looking, strategic discipline and processing, he said.
The focus has shifted to agility and efficiency when implementing risk analytics tools, Baker said.
"The high-performing Fiserv clients I work with have integrated risk analytics tools into finance operations," he said. "These advanced solutions offer an integrative solution that also forecasts and plans for the strategic future."
Organizations are increasingly being thoughtful with their risk processes, he said. And in recent years questions to vendors have evolved from "what are your risk tools?" to "how do I get better information to make decisions for the future?"
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