In terms of marketable expertise for financial risk managers, what counts more: quantitative skills, or the ability to communicate and interpret the results of calculations? “The biggest surprise of our in-depth study is that communication ranked above quant skills,” said Christopher Donohue, Managing Director of Research and Educational Programs at the Global Association of Risk Professionals. On June 30, 2015, he reported on the results of the 2015 Job Task Analysis of GARP members.

Survey Design

The goal of the survey and analysis was to identify knowledge and skills necessary to support competent performance of tasks and responsibilities that are essential to the profession of financial risk manager. As well, GARP wants to guide revisions of, and validate, its FRM certification exams. The last GARP Job Task Analysis was carried out in 2011.

The field of financial risk management was broken down into “domains” such as credit risk, market risk, risk governance, quantitative analysis, financial modeling, and so on.

Within each domain, the respondent was asked what were significant tasks. For example, in credit risk, two significant tasks are calculation of counterparty risk; and calculation of the probability of default (PD) and loss given default (LGD).

Knowledge and Skills

The Respondents

The survey, which was done with Pearson VUE and International Credentialing Associates, was sent out to all current GARP members. About 1400 participants agreed to give feedback, which took between 30 and 60 minutes. Of these participants, about 85 percent are FRM-certified.

About half of respondents said they “perform risk manager tasks,” with the remainder supervising, working with, or teaching risk professionals. Over 60 percent had a master’s degree as their highest level of education.

Almost 40 percent work at banks, with the remainder working in asset management, insurance, broker-dealers, or consulting companies. Less than 5 percent work at a regulatory agency.

The top five countries represented were US (16 percent of all respondents), Hong Kong (11 percent), Canada and India (both at 7 percent).

Top 10 Tasks (Listed by Domain Alphabetically)

  1. Credit Risk – Calculate PD, EAD, and LGD
  2. Credit Risk – Calculate regulatory capital for credit risk
  3. Financial Markets – Assess counterparty risk
  4. Financial Markets – Identify and measure risks in derivatives
  5. Financial Markets – Identify and measure risks in individual assets and asset classes
  6. Modeling – Communicate and report deficiencies of value-at-risk (VaR)
  7. Modeling – Estimate, interpret, and report VaR
  8. Modeling – Select appropriate VaR model
  9. Risk Governance – Communicate risk to stakeholders
  10. Risk Governance – Ensure      compliance with regulatory updates

After presenting the top ten results by task, Donohue commented on the absence of quantitative analysis. “Perhaps it is an assumed part of job tasks.” He said there was a “trend away from providing numbers and more to providing explanation and analysis.”

Top 10 Skills or Knowledge (Listed by Domain Alphabetically)

  1. Enterprise Risk Management – Liquidity risk
  2. Financial Markets – Bonds, loans, equities, commodities, and FX
  3. Financial Markets – Forwards, futures, swaps and options
  4. Financial Markets – Interest rates and measures of interest rate sensitivity
  5. Financial Markets – Risk management strategies
  6. Market Risk – Stress scenarios
  7. Modeling – Stress testing and scenario analysis
  8. Modeling – Value-at-risk (VaR)
  9. Risk Governance – Basic risk types
  10. Risk Governance – Role of risk management in corporate governance

Looking into the Crystal Ball

Knowledge and Skills_crystal ball“One of the fallouts of the financial crisis was skepticism with quantitative skills,” Donohue said. “There’s no question risk management has a quantitative component, but going forward, the real value lies in putting context around what is derived.”

Over the next two to three years, the changes expected in the field, according to survey respondents are: more regulation and more compliance. There will be less value-at-risk (VaR) but more scenario stress testing. There will be increased sophistication in managing liquidity risk. As well, there will be more emphasis on data quality and information security.

Donohue went into greater detail on domains, tasks, and functions. An extensive Q-and-A followed. He said the results will be issued soon in a written report.ª

Click here to view the webinar presentation by Christopher Donohue: The Knowledge, Skills and Abilities of a Financial Risk Manager.

Disclaimer: The author is FRM-accredited but did not participate in the 2015 study.