Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

Part FourBetter Decisions – Capital, Balance Sheet and Risk Management

“What gets measured, gets managed.” Recognizing this, Part Two: Better Information defined a value-based measurement framework tailored to risk-based, capital-intensive businesses. The framework makes a clear link between risk-adjusted performance measures, management actions and shareholder value, focusing attention on what is important for value managers in the financial services sector: profitable growth, operating efficiency, underwriting effectiveness and capital management.

While good information is a necessary condition for success, it is not a sufficient condition. Ultimately, tactical and strategic decisions need to be taken and this requires not only better information but also an in-depth understanding of successful business strategies and management actions by segment. Recognizing this, Part Three: Better Insights summarized successful business strategies, or the “rules of the game,” and concrete management actions for creating value in each segment. These insights are useful for business leaders in refining operating strategies and for the finance and risk functions to effectively challenge those strategies.

In addition to providing better information and better insights, the finance and risk functions also create value by taking better decisions in the three critical areas directly under their responsibility, as illustrated in Figure P4.1.

• Strategic planning, capital allocation and performance ...