RISK MANAGEMENT INFORMATION SYSTEMS

A risk management information system (RMIS) is an information system that assists

in consolidating property values, claims, policy, and exposure information and
provide the tracking and management reporting capabilities to enable the user
to monitor and control the overall cost of risk. The concept of a management
information system (MIS) is quite broad, and includes three clearly separate elements
namely; information, users, and computer equipment.
Reports preparation is an essential component of a risk management information
system. Completely defined procedures for report preparation is an absolute
necessity for the entire information process. This should explicitly specify
report
generation
frequency,
responsibility
for
generating
reports,
distribution, information content, etc. Such procedures avoid implementation of an
information process based solely on ad hoc reports, which can lead to confusion inside
and outside the entity.
We can classify reports into three basic categories, depending on the purpose they
serve:
Evaluation reports
These reports provide information on the entity's profits and losses, risk, and return on
risk-adjusted capital (RORAC), as well as the most significant changes that have occurred
since the last report.
Control reports
These reports analyze whether the true situation of the entity is appropriate, in terms of
compliance with capital at risk (CAR) limits, asset and liability gap structure, and hedge
percentages.
Reports supporting decisions made
The basic purpose of these reports is to present expected results, based on a
combination of analysts' market expectations and the current position of the entity.
TYPES OF REPORTS GENERATED BY RISK MANAGEMENT INFORMATION
SYSTEMS
The Board of Directors of the entity must be informed periodically regarding how the risk
management strategy is being executed through a number of reports that summarize
the overall situation. The board may also request other information that it deems
necessary in order to understand the precise condition of the entity's businesses and
how risks are being managed. A number of reports are presented below that summarize
the status of risk management at the entity. They show the main aspects that are of
interest to the Board of Directors.
1. Report to the Board of Directors on Results is a report on the profitability of

each of the businesses in which the entity is active, and the risks assumed as a
result of that business. It also explains the factors responsible for the results
obtained and provides comments about the most significant events.
2. Report to the Board of Directors on the Foreign Exchange Risk of Direct

Investments is a summary report on the management of the foreign exchange

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risk to which the entity is exposed through its direct investments. This report
provides information to the Board of Directors on the entity's position, the extent
to which objectives have been achieved, and the results of hedging transactions.
3. Report to the Board of Directors on Commercial Banking Results the

results of the commercial banking portfolio and its associated management

portfolio are evaluated.
4. Report to the Board of Directors on the Structure of the Commercial

Banking Portfolio The purpose of this report is to inform the Executive

Committee of the risk/return profile of each of the entity's businesses.
5. Report to the Executive Committee on Results this report shows the current

CAR of each of the businesses and the percentage utilization of the risk limit, so
that the risks being assumed by the entity can be controlled in terms of Capital-atRisk.
6. Report to the Executive Committee on Market Risk

Institutions should put in place effective systems and tools for the measurement of
various quantifiable market risks and for the assessment of less quantifiable
market risks. These systems and tools should also be able to monitor the changes
in market risk factors (e.g., rates and prices) and other market conditions on a
daily or more frequent basis. The systems should, wherever feasible, be able to
assess the probability of future losses. It should also enable the Institutions to
identify promptly and take quick remedial action in response to adverse changes in
market factors.
7. Report to the Executive Committee on Credit Risk

Credit reporting systems are essential to creating sound financial infrastructures

that facilitate lending and help expand access to credit to a significant share of
individuals, microfinance, and small and medium enterprises. Also, they help
satisfy lenders' need for accurate, credible information that reduces the risk of
lending and the cost of loan losses. Therefore a financial information system should
generate a report which is able to capture all of the above.