Data Analytics for Risk Hedging: Data Storytelling as a Risk Analyst

Data Analytics for Risk Hedging: Data Storytelling as a Risk Analyst

As a risk analyst, you are well aware of the value of data analytics in comprehending and controlling the risks to your company. But how can you explain intricate facts and analysis to a non-technical audience effectively? Data storytelling can help with that. You may captivate your audience and aid them in comprehending the value of the facts and information you are giving by employing narrative approaches.

Data storytelling may assist you in effectively communicating complicated data and research to a non-technical audience, including helping you identify major risks and evaluate their impact as well as track and monitor risk levels and trends.

You also may recall my old article, “Data Analytics for Business: Data Storytelling as a Financial Analyst”, explaining in details how you can properly tell your data story as a Financial Analyst; where we explained multiple factors and variations of what might be the upcoming challenge for aspiring financial analysts in businesses and financial institutions.

Today, we will walk through the new variation of the same concept, focusing on explaining proper Data Storytelling techniques but from a Risk Analyst’s perspective in order to properly mitigate financial and non-financial risks associated within the business and financial institution’s possible events; as a welcome to my new series: Data Analytics For Risk Hedging.

📛 INCORPORATE DATA ANALYTICS TO HEDGE RISKS

By using Data Analytics to visualize certain risks and their potential effects on the company, data analytics may be utilized to assist financial institutions in managing risk. Here are a few ways financial institutions may utilize data analytics to reduce risk:

1. Data analytics: May be utilized to detect possible dangers the business may encounter. This might entail looking for patterns or trends in data on previous risk incidents, industry trends, and economic situations that can point to prospective dangers.
2. Risk evaluation: Data analytics may be used to evaluate how identified risks might affect the organization. The likelihood and severity of prospective risk occurrences can be calculated using statistical models and simulations.
3. Risk management: Financial organizations may employ data analytics to assist in the implementation of efficient risk management methods. This might entail the use of data to categorize and rank risks as well as to create and put into practice risk-reduction strategies including risk-based pricing, collateral requirements, and risk-transfer instruments.
4. Continuous monitoring: Financial institutions may utilize data analytics to continuously monitor risk levels and trends and, if necessary, modify their risk management policies. This might entail identifying developing dangers using real-time data and taking preventative action to lessen their effects.

📊 ACTIVE DASHBOARD PRESENTATION IMPORTANCE

Dashboards and data analysis can be useful risk management tools in the banking business. Dashboards are visual representations of key metrics and indicators that can be used to track risk levels and trends over time. Data analysis is the process of extracting insights from data using statistical and analytical approaches. It can be used to identify potential risks and assess their potential implications on the company.

Here are some examples of how dashboards and data analysis can be used in banking risk management:

1. Risk identification: Dashboards and data analysis can be used to identify potential risks that the organization may face. This can involve analyzing data on past risk events, industry trends, and economic conditions to identify patterns or trends that may indicate potential risks.
2. Risk assessment: Dashboards and data analysis can be used to assess the potential impact of identified risks on the organization. This can involve using statistical models and simulations to estimate the likelihood and severity of potential risk events.
3. Risk monitoring: Dashboards and data analysis can be used to continuously monitor risk levels and trends, enabling financial institutions to adjust their risk management strategies as needed. This can involve using real-time data to identify emerging risks and to take proactive measures to mitigate their impact.
4. Risk reporting: Dashboards and data analysis can be used to automate hideous reporting processes to senior management and board members of your organization. By automating such tasks in a way that is required to be needed almost as an ad-hoc report, you help save both time and effort of creating such presentations, while maintaining accurate results.

1️⃣ RISK IDENTIFICATION

The process of identifying the dangers that an organisation faces is known as risk identification. It is the initial phase in the risk management process and is crucial for enabling firms to conduct proactive risk mitigation or management actions.

There are various risk identification approaches available, including:

• Risk registers: A risk register is a document that details the risks that an organisation faces, as well as information regarding their likelihood and potential impact. Risk registers are useful for identifying both known and unknown threats.
• Risk workshops: Risk workshops are interactive meetings in which stakeholders identify and discuss the risks that an organisation faces. These sessions can be used to generate ideas about potential risks and rank them according to their likelihood and potential impact.
• Data analysis: By examining data on previous risk incidents, industry trends, and economic conditions, data analysis can be utilized to identify risks. Patterns or trends that may suggest possible threats can be identified using statistical models and simulations.
• Risk questionnaires: Surveys that are designed to obtain information about the risks that an organization faces. These questionnaires can be distributed to organizational stakeholders and used to identify both known and potential risks.

By identifying the risks that a company faces, proactive measures can be taken to mitigate or manage those risks and safeguard against potential losses.

2️⃣ RISK ASSESSMENT

An organization’s exposure to risks is assessed in terms of their likelihood and potential effects. This is a crucial step in the risk management process because it enables you to prioritize your efforts to mitigate the risks that your organization faces and better understand the threats they pose.

There are several crucial components to a risk assessment:

• Identifying Risk: Finding the risks your organization faces is the first step in the risk assessment process. In order to identify potential risks, this may entail analyzing data on previous risk events, industry trends, and economic conditions.
• Evaluation of possible risks: Once risks have been identified, they should be assessed to determine how likely it is that they will materialize. To estimate the likelihood of potential risk events, this may involve the use of statistical models and simulations.
• Impact analysis of the Risk: It’s critical to evaluate the potential impact on your organization in addition to the likelihood of risk. Take into account potential outcomes of risk events, such as monetary loss, reputational harm, and business disruption.
• Prioritization of Risks: Prioritizing risks can be done based on overall risk level once risk likelihood and impact have been evaluated. This enables organizations to concentrate on minimizing their greatest risks first. An organization can better understand the risks it faces by carrying out a thorough risk assessment. This will help the organization to set priorities for effective risk mitigation actions.

3️⃣ RISK MONITORING

In order to identify potential problems and take prompt action to lessen their impact, risk monitoring is the process of continuously tracking and assessing the risks that an organization is exposed to. An ongoing process called risk monitoring assists organizations in staying informed about the threats they face and in implementing preventative measures to manage those threats.

Effective risk monitoring requires a number of essential components, including:.

• Finding the risks: Finding the risks that the organization is exposed to is the first step in risk monitoring. To identify potential risks, this may entail analyzing data on earlier risk events, market trends, and economic conditions.
• Risk assessment: After risks have been identified, they must be evaluated to ascertain their likelihood and potential effects on the organization. To estimate the likelihood and seriousness of potential risk events, statistical models and simulations may be used.
• The risks must be tracked over time in order to monitor their evolution and spot any new risks after they have been identified and evaluated. Key risk metrics and indicators can be displayed using dashboards or other visualization tools in this manner.
• Responding to risks: It’s critical for the organization to have a plan in place for quickly and effectively handling risks when they arise. This may entail putting risk-reduction techniques into practice or turning on backup plans as necessary.

Organizations can better manage the risks they face and guard against potential losses by continuously monitoring risks and taking prompt action to reduce their impact.

4️⃣ RISK REPORTING

Risk reporting is the process of communicating risk and risk management information to stakeholders within an organization. This may include the risks faced by the organization and the measures taken to mitigate or manage those risks. Risk reporting is an important part of risk management because it helps ensure that stakeholders understand the risks facing the organization and can take appropriate action to address them.

A risk report typically includes several key elements, including:

• A description of the risks to which the organization is exposed, including the likelihood and potential impact of those risks.
• A summary of measures taken to mitigate or manage these risks, including any risk mitigation strategies or risk transfer mechanisms that have been put in place.
• Review the effectiveness of the organization’s risk management efforts, including any areas that may require improvement.
• An assessment of the organization’s overall risk profile, including an assessment of the organization’s risk appetite and risk tolerance.

By providing regular and comprehensive risk reporting, organizations can help ensure that stakeholders understand the risks facing the organization and can take appropriate action to address them.

👎🏻📉 “BAD” STORYTELLING PRESENTATION

Here are some more particular instances of poor data storytelling methods in the context of risk analysis in banking:

1. Lack of clarity: This can include presenting data in a disorganised or confusing manner, employing improper or misleading visual aids, or failing to effectively communicate the important points being made.
2. Inadequate context: Failure to give relevant background information or context for the facts being provided, making it difficult for the audience to appreciate its relevance.
3. Overuse of technical jargon: This can involve utilising technical language or terminology that is difficult for non-experts to grasp, rendering the data presentation inaccessible to a wider audience.
4. Inadequate use of visual aids: Visual aids like as charts, graphs, and maps can help to display facts in a more intuitive manner. If the data presentation lacks visual aids, the audience may struggle to understand the essential points being stated.
5. Lack of engagement: A boring or uninteresting data presentation can turn off the audience. To keep the audience engaged, interactive components such as case studies and tales should be used.

Real-life Example:-

Title: “Analysis of Credit Risk for Small Business Loans”

Objective:

To present the results of a credit risk analysis for small business loans.

Introduction:

• Small business loans are an important source of financing for many businesses.
• However, these loans also carry a certain level of risk, as there is a chance that the business may default on the loan.
• In this presentation, we will present the results of a credit risk analysis for small business loans.

Body:

• Present a large amount of raw data on credit risk for small business loans, without any visual aids or explanations.
• Use technical jargon and terminology without providing any context or definitions.
• Fail to provide any case studies or real-world examples to illustrate the key points being made.

Conclusion:

• Summarize the raw data presented in the body of the presentation, without offering any insights or recommendations.

This data storytelling presentation lacks clarity, context, and engagement. It presents raw data without any visual aids or explanations, making it difficult for the audience to understand the key points being made. It also relies heavily on technical jargon and terminology, making it inaccessible to non-experts. In addition, it lacks interactive elements such as case studies or real-world examples, making it dull and unengaging for the audience. As a result, it is an ineffective way to communicate complex data and analysis on the topic of credit risk for small business loans.

By avoiding these typical errors, data storytelling strategies for banking and financial organizations can be more effective in the context of data presentation in risk analysis.

👍🏻📈 “GOOD” STORYTELLING PRESENTATION ‘

Here are some useful data storytelling strategies for banks and financial institutions in the context of data presentation in risk analysis:

1. Clarity: Present the facts in a clear and structured manner, making use of relevant visual aids such as charts, graphs, and maps to show significant points.
2. Provide essential background: Information and context for the facts being presented to assist the audience in understanding its significance.
3. Use simple language: Use simple language that is easy to grasp for the audience, avoiding technical jargon and terminology whenever possible.
4. Use visual aids: To help present the facts in a more intuitive way, use visual aids such as charts, graphs, and maps.
5. Use interactive components: Such as case studies and storytelling to keep the audience engaged and interested in the material being given.

Real-life Example:-

Title: “An Exploration of Credit Risk for Small Business Loans Using Bayesian Inference”

Objective:

To use Bayesian inference to understand the key elements that lead to credit risk in small company loans and to identify solutions for mitigating that risk.

Introduction:

• Small company loans are a critical source of funding for many businesses.
• However, these loans are not without danger, as the business may default on the debt.
• In this talk, we will use Bayesian inference to analyze the elements that contribute to credit risk for small company loans and offer techniques for lowering that risk.
• Use charts and graphs to demonstrate the most important variables.

Body:

• Analyze data on credit risk for small business loans using statistical modelling, considering characteristics such as the company’s financial health, industrial sector, and credit history.
• Use case studies to demonstrate how these elements developed in real-world scenarios and how they impacted the loan’s risk rating.
• Provide credit risk mitigation techniques, such as requiring collateral or applying risk-based pricing.

Conclusion:

• Summarize the important factors that contribute to credit risk for small company loans as identified using Bayesian inference, as well as the measures that can be used to mitigate that risk.
• In order to urge the audience to consider these aspects when analyzing potential loans, emphasize the need of thorough risk analysis in the lending process.

This data storytelling presentation delves into the topic of credit risk for small company loans by employing complicated terminology and statistical approaches. It organizes and delivers the data logically, and it uses case studies and real-world examples to help emphasize the essential points being addressed. It also gives pertinent context and background information to assist the audience in comprehending the significance of the data. As a result, it is a powerful tool for communicating complex data and research on this subject to a smart audience.

By adhering to these best standards, data storytelling may be an useful tool for communicating complicated data and analysis in a simple, clear, and engaging manner, allowing stakeholders to make more informed decisions regarding potential risks and their implications for the company.

📖 RECOMMENDED BOOKS TO READ

The Visual Display of Quantitative Information by Edward R. Tufte

Edward R. Tufte’s “The Visual Display of Quantitative Information” Anyone interested in data visualization should read this classic book. It offers advice on how to successfully present complicated data and research and covers a wide range of issues, including the design of charts, graphs, and maps in a way that is specifically written around the proper explanation of Quantitative Information.

How Charts Lie: Getting Smarter about Visual Information by Alberto Cairo

Alberto Cairo’s book “How Charts Lie: Getting Smarter about Visual Information” addresses how charts and other visual aids may be used to mislead or fool the observer.

The book illustrates how visual aids may be used to distort the facts being presented, as well as how to identify and avoid these errors. It covers a wide range of subjects, including as chart design, colour use, and statistical data interpretation. The book’s goal is to assist readers become more critical and sophisticated visual information consumers, as well as to spot when charts are being exploited to mislead or deceive.

🛫 THE TAKEAWAY

Data storytelling is a strategy for conveying complex data and analysis in a straightforward, understandable, and entertaining manner. Particularly in the context of risk analysis for banking and financial organizations, it can be a useful tool for highlighting prospective risks and their potential effects on an organization. A clear and orderly presentation of the data, the use of appropriate visual aids, the inclusion of pertinent context and background information, the use of simple language, and the use of interactive elements like case studies and tales all contribute to good data storytelling methods.

On the other hand, poor data storytelling techniques, which may include presenting data in a confusing or disorganized manner, failing to provide enough context, relying on technical jargon, omitting visual aids, or failing to engage the audience, can undermine the effectiveness of the data presentation. It is feasible to more successfully convey complex data and analysis in a way that the audience can comprehend and engage with by avoiding these errors and adhering to appropriate data storytelling techniques.

❔THOUGHTS

What are some strategies that you have found effective for using data storytelling in the context of risk analysis for banking and financial institutions? Can you provide any examples of how data storytelling has helped to communicate complex data and analysis in a clear and engaging way?

ABOUT ME

I’m an articulate Finance Analytics and Business Intelligence expert with more than five years of progressive and continuous experience in the BI and decision-making fields and project management, as well as four years of experience in the finance sector. personable with strong knowledge and experience in Operations, Risk, Data Analytics & Visualization. I am helping financial institutes and directors to perform accurate financial data analysis and analytics that will benefit in volume, growth, brand, and profits; and mitigate associated risks with taken actions.

➡️For more content like this, subscribe to this newsletter, and please follow me on LinkedIn. Let’s grow together and share our insights and knowledge with a broader audience! ⬅️