Risk Management for Everyone

by John Boyd

Evidently, the only thing we can bank on today is that risk is everywhere. What's more, as financial markets deregulate and grow more complex, the element of risk is increasing, making these the worst of times. So, for companies like Infinity Financial Technology, a California-based creator of risk management software running on Unix and Windows NT operating systems, these may be the best of times.

Reducing business risk

Risk management, according to Infinity founder and CEO Roger Lang, is all about gathering and sorting the appropriate data, then analyzing it to make informed decisions. "It's a Darwinian world," stressed Lang in Tokyo recently. "Executives at the top of the business food chain have to keep correct risk/return score cards to make smart decisions -- or they'll face the consequences."

Apparently, Lang has been using his own software to make decisions at Infinity, given the company's bright score card. Infinity has nearly doubled revenues every year since 1992's initial $2.5 million in sales, and Lang predicted hitting $60 million for 1997.

This success, in a growth market expected to reach $4 billion in annual global revenues by 2000, caught the eye of a larger financial software and computer services company, Chicago-based SunGard Data Systems. Last October, the two companies agreed to merge. Meanwhile, IBM is licensing Infinity's software to help it provide its customers with turnkey risk management solutions.

Before Infinity, Lang had helped establish another risk management software company called C.ATS. He left to go solo when Mitsubishi Bank contracted him to consult on building an early risk management system that supported Japanese marketing practices. "We delivered the system on time and on budget -- and the result was joint ownership of the deliverable. That's how Infinity got started," explains Lang.

He had chosen object software to create the Mitsubishi Bank system (a prescient choice back in the '80s). This has enabled Infinity today to provide a veritable toolkit of open-architecture software goodies that customers can mix and match with their in-house systems and applications. In Japan, after word spread, other corporations, including Sakura Bank, Taiyo Kobe Bank, Mitsubishi Trust Bank, and Mitsui Trading, came calling.

These corporations rely on the support of departmental computer subsystems to manage a plethora of domestic and global transactions -- including foreign exchange, derivatives, credit, investments, loans, and mergers. To be able to intelligently assess and manage its risk, Lang says a company must be able to dig down to this level of transactional activity, pull out the pertinent details, integrate them with information from other corporate information systems, then analyze the results.

Taking stock of personal risk

Recently, the concept of risk management has expanded beyond merely assessing the risk involved in current corporate activities. It now includes helping companies and even individuals to proactively improve returns on their investments. Banks, for instance, have begun using risk management software to better apportion investment capital according to the appropriate risk/return level -- something that, implemented earlier, might have prevented Japanese banks from running up trillions of yen in bad loans over the past decade.

For individual investors, Infinity joined last year with IBM and Dow Jones to introduce a service called riskview.com, which is freely accessible over the Internet. When you visit the IBM-hosted website http://www.riskview.com/, you can access global stock data and conduct the kind of risk analysis on your own portfolio that was previously only available to professional traders. Riskview.com offers access to data on 3,000 of the world's most traded stocks found in major exchanges around the globe, including the Tokyo Stock Exchange. You can review five years of historical data for each stock, and information is updated daily by Dow Jones. Infinity's analytical software can generate up to 9 million correlations between the 3,000 stocks, which can help clarify the interdependence between, for instance, the stocks of NTT and Oki Electric. This can be invaluable in building a balanced portfolio.

"It's a free service available to anyone," says Lang. "It's a way for us to educate the consumer in risk management. It also creates a pull demand for our products because it puts pressure on financial institutions to come up with their own risk management services." If good for nothing else, the current market turmoil is forcing financial institutions to take risk more seriously. And now, with the Internet and Infinity, individual investors can do the same.

John Boyd writes on the IT industry for a number of publications. You can risk contacting him via fail mail at boyd@gol.com.

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