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What do other people say about the importance of
industry knowledge?
“When an industry with a reputation for difficult economics
meets a manager with a reputation for excellence, it is
usually the industry that keeps its reputation intact.”
Warren Buffett
“Industry (conditions) directly account for 19% of
aggregate variation in business specific profits and 36%
of explained variation
Michael Porter
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Traditionally….
Risk was designed
and used in the
Banking & Finance sector
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Finance Risk is Used in the Various Stages of the Credit Cycle
Credit Officers and Relationship Managers
Loan assessments
Portfolio/Credit Analysis - in conjunction with
the finance institution‟s own information. Stress
Testing and Early Warning Systems
Credit Committees – Strategy decisions on
“Where to lend and at what price”
Senior Management - Assessment & Policy
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Commercial Lending
• Compliments financial risk factors by putting financial
data in „real world‟ setting.
• Fulfills compliance criteria as set out by Basel II and III
and allows a bank to better assess its portfolio of loans.
• Risk data can help predict the likely rate of default in an
industry. Banks price interest rates accordingly.
• Theoretically they can lend out more cash because they
have better risk management
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Your client is/may be involved in the following activities:
• Client/Supplier - Industry SWOT Analysis
• Suppliers - Downstream debts/credits
• Clients - Upstream debts/credits
• Return on investment requirements
• Mergers & acquisitions interest
• Alliance Relationships
• Exposure to a wide range of industries
• Legislative compliance requirements
• Due-Diligence
• Industry segmentation analysis
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• Single, quantifiable measure of risk a company faces in trading.
• Our Risk model is forward looking – the score is based on economic forecasts
as opposed to historical financial data
• By understanding risk a company can limit or offset its exposure to high risk
industries, or seek a greater rate of return in compensation.
• Cover the entire economy: The breadth of our industry reports and external
sensitivities our risk model can stand alone.
• Excluding company, risk helps explain the external business environment of a
client, which is 35% of all risk.
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• Scenario Builder
Conduct „What if‟ analysis across all 500+ industries to determine the impact on
changes to key economic drivers and the clients that are exposed e.g. Crude
Oil price, Exchange Rates, etc
Allows the User to change the Model, Weightings and Assumptions
• Early Warning System
Identify Direction and Trend of Risk by using:
historical, current, forecast risk scores and to generate customised risk profiles
which identify „red flag‟ industries
