BAM Business Scenario #2: Risk Management System
The next example explores risk-related metrics in the context of an executive decision-support system for a mortgage lender.
The mortgage lending industry has enjoyed a recent boom of loan refinancing, which has created significant revenue for mortgage lenders. However, as interest rates have increased, mortgage lenders have had to address the major drop in loan volume, because a mortgage lender's revenue is directly tied to the loan volume that it processes.
To address this issue, some mortgage lenders have taken on loans with higher-risk profiles. While this strategy satisfies certain metrics (loan volume, revenues, etc.), it does so at increased risk, measured as an aggregate of the individual risk profiles in the loan portfolio.
Thus, a user involved in operations (say, a VP of production) would focus on operation-centric metrics such as loan volume. That is, if the amount of loan volume from a particular region is falling below a particular threshold, this factor may indicate a need for additional marketing. Or it might indicate that a number of loans are not reaching completion, which in turn can indicate a lack of qualified personnel.
As another example, the blend of loan types (15 years versus 30 years, fixed versus adjustable, and so on) is of interest because particular blends can require the organization to carry different amounts of cash reserves. Thus, a risk manager may want to manage his risk exposure by being alerted if the percentage of adjustable loans is exceeded. However, a user in the risk department (such as a risk manager) would be interested if a specified risk threshold is exceededagain, expressed as a numeric value, derived from the individual values of the risk profiles associated with each loan.