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Credit risk management becomes more complex

Feb 12, 2013 Walt Wojciechowski

Credit risk management becomes more complex

The Great Recession and subsequent economic recovery has been long and arduous, especially for credit risk managers in businesses across the nation. As several segments of the economy continue to improve gradually, such as employment, gross domestic product (GDP) and consumer spending, credit risk managers need to be especially thorough when informing executive decisions.

Though many forecasts indicate that the economy will continue to improve, especially after the resilience exhibited despite political uncertainty in the final months of 2012, risk is still a major factor. Businesses can make the strongest decisions by ensuring all risk managers are adequately educated in the responsibilities associated with the tasks.

Treading softly

The Financial Times recently reported that credit risk management needs to be a focus of businesses, banks and all other entities that provide financial services. The potential problems of poor credit risk management were exhibited en masse during the economic fallout, as many analysts and lawmakers pointed the blame toward shoddy decision making on behalf of various major banks and businesses. 

According to the news provider, teaching credit risk management accurately is a very difficult task for schools and businesses today. Because of the constantly shifting flow of risk related to consumers and businesses, nailing down one tried-and-true solution to the activities can be difficult.

The source asserted that while mathematical models are crucial in the credit risk management process, it cannot be the only solution in place to inform decision making. Additional expertise and evaluations of less concrete facts should also be considered, and professionals in this industry need to be experienced to manage the various processes accurately.

The Financial Times explained that the best risk management strategies will include statistical analysis techniques, financial evaluations and advanced research into consumer or corporate histories. This can only be achieved through strong and thorough experience with research, analysis and training.

Credit risk management for younger businesses
Small businesses, especially at the startup level, will often not have the resources to hire a strong in house credit risk manager. Additionally, not all entrepreneurs possess the necessary knowledge to carry out risk assessments and make the best decisions.

For these reasons, outsourcing credit risk management to seasoned professionals can be the most affordable and effective solution to ensure smart, savvy decision making. Even larger companies can benefit from the use of these firms, as credit risk management requires a thorough attention to detail.