RiskMetrics Group was originally founded as an in-house risk management division of JP Morgan in the 1990s but spun off as an independent company in 1998, with Ethan Berman as its leader guiding its growth from a small startup to a prominent risk analytics firm in the industry through the late 1990s and early 2000s as it considered strategic options for continued expansion. The document analyzes RiskMetrics' operations, culture, products, clients, challenges around hiring and strategic direction, and risk assessment with recommendations for mitigating key risks to support its future success.

1. Syndicate 5 (Ape Syndicate)
Yuliana Irmina 29110389
Decky Prasakti 29110391
Resti Athayani 29110402
Lamya Nur Zahidah 29110406
Harry Riusxander 29110408
Wisnumurti Rahardjo 29110412
Ronaldo Bagus Putra 29110404
Ethan Berman at
RiskMetrics Group (A)

2. Origins of RMG at JP Morgan
• RMG started as an in-house division of
JP Morgan, institutional investment
bank.
• 1990, Dennis Weatherstone, Chair of
Morgan  concise the daily report that
measured the company’s proprietary
risk at the end of each day

3. Origins of RMG at JP Morgan
• 1994, Morgan made their RiskMetrics database
available gratis to their clients, the reasons are :
• Make market risk more obvious & apparent to
investors & manager
• Make risk management tools available to users
who lacked the resources to develop their own
systems
• Established their var system as the industry
standard

4. Spinning off
Mid 1990, investment banks were closing down their risk-
management groups because of concern over liability
October 1998, the RMG spunout from JP Morgan, its board of
directors consisted of Steve Thieke (from Morgan), Krishna
Biltoo (from Reuters), and two employee seats (one filled by
Berman)
A condition of spin off was that all employees would be
shareholders in the company

5. ETHAN BERMAN
 He studied in London, was an artist in Paris, was a
businessperson in New York and Tokyo.
 Graduated from Williams College as a theater
and psychology double-major
 Berman made Managing Director at J.P Morgan in
New York, trading zero-coupn bonds and options
 From a stint in India, he proposed a business plan
for a risk management group at Morgan
 Berman brought his drive and passion to
RiskMetrics, inspiring the same in his employees.

6. THE BUSINESS OF RISKMETRICS GROUP
 By mid-1990s, corporation faced heightened
global competition, increased financial risk,
exposure and individuals managed their own
assets through online brokerages, banking
service, and financial planning tools.

7. THE BUSINESS OF RISKMETRICS GROUP
 Many players in the risk management software industry
differentiated themselves with a variety of approach to
account for and measure risk exposure, as :
• Industry giant Algorithmics, used VaR calculations
• BARRA, used beta measures
 The important way in which they distinguished themselves
was in size of clients they sought and the range of services
offered
 Success in the industry was predicted upon brand
exposure, client relations and benchmark products, all
factors that were up for grabs at the time of RiskMetrics
spin-off from Morgan

8. THE BUSINESS OF RISKMETRICS GROUP
By the end of the 1990s, large financial service
firms routinely :
 invested in foreign markets
 Understanding the risk implications of such
investments was critical
Becoming more so as the “global economy”
came into being

9. Culture
• Riskmetrics have a friendly, comfortable, and
family environment
• People have a high morale
• Every decision discussed at a consensus driven
meeting with brainstorming, which the entire
company participated

10. Forming an Organization
• There is a meeting for discuss current issues and make
consensus base decisions
• 7 company’s visionary :
 Ability to make decisions with few necessary information
 Organization need to be become bad news organization
 Innovative companies must be willing to cannibalize their
existing business
 Create strong and consistent messages
 Maintain our culture
 Delivery of the product
 Information is power

11. Forming an Organization
• Organized into six working department
Research : designing the model and methodologies
used in their risk products
Product management : responsible to managing the
flow of the product from initial development to the
client
Software development :programming core of the
firms
Data
Sales : sought new clients
Administration : do administrative things

12. • Business philosophy  Provide high-quality
service (efficient, low cost) to build long-
lasting client relations.
• Business Model
 Short-term software leasing.
 Educating client
• Product  Risk Manager, Credit Metrics,
Corporate Metrics.

13. The First Year Anniversary
• Anniversary event  Combine art
exhibition with multiday client event “get
client into our office, and explain our
product and delivery schedule”
“communicate our mission and message to
client and give each other feedback”
• Revenue were $6million and hired 40 new
people at R&D.
• RMG management style and lack of a
formal structure was hindering the firm’s
long-term growth and revenue.

14. The Problem of The
Berman was unclear as
to how he should go Senior Hire
about the hiring process.
There are three An “Ethan-Clone”
possibilities for senior more vision, more
poses could be needed : ideas, great at inspiring
others both in closing
deals and talking to
clients An Expert
A “Day-to-day Manager” someone highly
experience in
sales, marketing,
more detail and and product
process oriented promotion

15. The Problem of The
Senior Hire
• Berman worried that instituting a second
level of management would force him
away from current relationship with his
employees.
• At last, Berman arranged an informal
hiring committee, selected unofficial
representative from each of the six
working groups to discuss the goals in
making new senior hires and interview
possible candidates.

16. Strategic Decision for 2000
There are a number of different paths along Berman could
take the firm:
Continue to market their risk management software to
medium-sized firms and develop new products for their
institutional clients

17. 1. A significant shift in corporate focus
2. More aggressive business strategy to grow the firm
3. A change with which not all employees were comfortable
4. Firm’s ability to enter new arena
5. IPO plan within next year
6. Do the firm “Get it right” and “Get big fast”?

18. ANALYSIS

19. Risk Identification
No Risk Cause Category
1 Slow decision making Inability of employees Business
2 Slow software development Inability of employees Business
3 Loss market Competitor’s online system Business
4 Loss sales Cracked software Business
Lack of marketing strategy
5 Employee turnover Lack of career path Human resource
6 Hiring process Company’s culture Human Resource
7 Lack of funds Loss of net income Financial
Bigger sales cost

20. Severity
Score Indicator
5 Bankcruptcy
4 Bigger debt or loss
3 Decreasing market share
2 Instability of company’s performance
1 Not growing performance
Probability
Score Indicator
5 <= Weekly
4 Monthly
3 Quarterly
2 Semester
1 >= Yearly

21. Risk Scoring
No Risk Severity Probability Score
1 Slow decision making 2 4 8
2 Slow software development 3 3 9
3 Loss market 3 4 12
4 Loss sales 4 5 20
5 Employee turnover 2 4 8
6 Hiring process 1 3 3
7 Lack of funds 5 1 5
Risk Category
Score Category Information
1–5 Low Risk Risk Tolerance
6 – 10 Medium Risk
11 – 15 High Risk
16 – 25 Very High Risk

22. RISK MAP
Severity No Risk
5 1 Slow decision making
7
2 Slow software development
4 3 4 3 Loss market
4 Loss sales
3
2 5 Employee turnover
6 Hiring process
2 1 5
7 Lack of funds
1
6
1 2 3 4 5
Probability

23. Mitigation
Hire new executive officer
Severity No Risk
5 1 Slow decision making
7
2 Slow software development
4 3 4 3 Loss market
4 Loss sales
3
2 5 Employee turnover
6 Hiring process
2 1 5
7 Lack of funds
1
6
1 2 3 4 5
Probability

24. Mitigation
Go to online system and long term contract
Severity No Risk
5 1 Slow decision making
2 Slow software development
4 3 4 3 Loss market
4 Loss sales
3
7 2 5 Employee turnover
6 Hiring process
2 1 5
7 Lack of funds
1
6
1 2 3 4 5
Probability

25. Mitigation
Employee’s contract and additional career path
Severity No Risk
5 1 Slow decision making
7
2 Slow software development
4 3 4 3 Loss market
4 Loss sales
3
2 5 Employee turnover
6 Hiring process
2 5 1
7 Lack of funds
1
6
1 2 3 4 5
Probability

26. Mitigation
Knowledge sharing and benchmarking
Severity No Risk
5 1 Slow decision making
7
2 Slow software development
4 4 3 Loss market
4 Loss sales
3
5 Employee turnover
6 Hiring process
2 3 1
7 Lack of funds
1
2 6 5
1 2 3 4 5
Probability

27. After Mitigation - Risk Map
Severity
No Risk
5
1 Slow decision making
4 2 Slow software development
4
3 Loss market
3 4 Loss sales
7
5 Employee turnover
2 3 1 6 Hiring process
7 Lack of funds
1
5 2 6
1 2 3 4 5
Probability

28. RECOMMENDATION
Hire new executive officer
Go to online system and
long term contract
Employee’s contract and
additional career path
Knowledge sharing and
benchmarking

29. Lesson learned
• Identification of risk is a systematic effort to determine
the threat to the project plan. The goal is to avoid risks
whenever possible, and avoid it at any time necessary.
• Identification of risk accurately and completely is vital
in risk management. One important aspect in the
identification of risk is a list of possible risks as much
as possible.
• All investment activities create risk exposures, but the
risk types and levels depend upon the activity
conducted.

30. • Effective investment activity oversight requires accurate risk
measurement. Without periodic assessments, management can
not determine the success of its investment strategies.
• Risk measurement should be tailored to the cash flow
characteristics of each particular instrument type.
• The determination of the probability of occurrence of an event
is more subjective and based on reason and experience.
• Some risk is easy to measure, but it is difficult to ascertain the
probability of an event is extremely rare.

31. • Risk mitigation is a systematic reduction in the extent
of exposure to a risk and/or the likelihood of its
occurrence. Also called risk reduction.
• Risk mitigation is usually carried out in compliance
with the lowest cost approach (least-cost approach) and
implement the control or the most appropriate control
(the most Appropriate controls) so as to reduce the risk
to the acceptable level with the most minimal risk
(minimal adverse impact) on resources and
organizational objectives.