RAPM popular, but doubts remain over reliability

Risk-adjusted performance measurement (RAPM) techniques are spreading rapidly across the risk management industry, but many still doubt how reliable the results are, according to an industry survey.

A survey of 240 risk managers by the Professional Risk Managers' International Association (PRMIA) and US software provider SunGard found that 44% already use RAPM, and another 45% plan to within the next three years.

However, uncertainty remained over the quality of the assessments being produced. 76% said their risk management received support from senior management but 39% of respondents - more than half of that group - said their controls, monitoring and measurement were inadequate. Inaccurate data or poor quality models were cited as the biggest obstacle to successful RAPM use by 28% of respondents, lack of funding was cited by 23%, and lack of management interest by 20%.

Of the different categories of risk, interest rate risk was the best handled, with 26% saying their measurements were "very accurate". Only 18% said the same for credit risk, and only 5% for operational risk.

In the area of credit risk, 48% distinguished probability of default and loss given default; of those that did not, most (55% - 27% of overall respondents) had no concrete plans to introduce a dual rating system.