Risk Management


In the last decade, significant advances have been achieved in measuring and managing risk. Among these advances are the introduction and current widespread acceptance of Value-at-Risk for measuring market risk, the assessment of credit risk on a portfolio-wide basis, and the recent introduction of operational risk into the overall risk measurement and management framework.

The increasing quantification of risk makes it a central theme in both the daily operations and long-term strategy of most organizations. Risk management is no longer strictly a response to regulatory requirements. It has instead become a business necessity and often a competitive advantage to those firms who recognize and understand its value. Effective risk management provides firms the ability to stabilize cash flows. Perhaps more important, it offers firms a way to customize their risk profile, shedding the risks they are unwilling to bear, and enabling them to concentrate on their primary businesses. Ultimately, enhanced risk management better aligns risk and return, thereby allowing firms to survive and prosper in today’s increasingly complex financial environment.

Secretariat Economists combines industry knowledge with strong financial modeling and statistical capabilities to offer customized risk management solutions to both financial and non-financial corporations.

Secretariat Economists’ Approach to Risk Management

Although many firms may be exposed to similar risks, all firms are inherently different and their exposures to each type of risk are distinct from one another. As a result, no packaged software program or analysis template can provide the kinds of customized analyses required by individual firms.

Secretariat Economists’ approach is to determine the individual needs of each company and to tailor its analysis to fit the client’s particular situation. At times, Secretariat Economists analysts may draw on the output of packaged software programs to assist our clients. In other instances, they may develop customized software that addresses the clients’ unique circumstances. Secretariat Economists also works closely with risk-management personnel in our client organizations to create systems and processes whereby risk management tools can be monitored, assessed and revised. This close working relationship enables Secretariat Economists to combine analyses, tools and ideas into practical recommendations that assist clients in management planning and strategy formulation. Secretariat Economists thus offers complete and customized solutions to each client to address their specific risk management needs.

Secretariat Economists has the unique combination of technical expertise and professional experience necessary to fully understand the distinct risk framework under which each firm operates. All Secretariat Economists professionals have advanced degrees from leading universities. In addition, many Secretariat Economists professionals have vast industry experience and have held important regulatory positions, including key positions in the Federal Reserve System, Securities and Exchange Commission, Commodities Futures Trading Commission, Council of Economic Advisors, Federal Trade Commission and U.S. Department of Justice.

Secretariat Economists’ Risk Management Services offer solutions in areas such as:

  • Compliance Review
  • Best Practice Benchmarking
  • Credit Decision Making
  • Corporate Hedging
  • Complex Pricing
  • Structured Finance
  • Management Planning and Forecasting
  • Risk Reporting
  • Performance Monitoring
  • Asset/Liability Management
  • Optimal Portfolio Allocation

Secretariat Economists’ Risk Management Services Include:

  • Identification: Secretariat Economists has the expertise and industry background to properly identify the market, credit, and operational risks firms are exposed to on a daily basis, as well as the business, regulatory, and strategic risks firms are exposed to in the longer term.
  • Quantification: Secretariat Economists has the technical knowledge to accurately quantify a firm’s risk exposures using the most advanced, yet appropriate, valuation methodologies and pricing techniques.
  • Implementation: Secretariat Economists has the resources and capability to develop and effectively implement the tools and techniques necessary for superior risk management.
  • Validation: Secretariat Economists has the sophisticated knowledge and analytical expertise necessary to validate the financial pricing and risk measurement models used by firms in different industries.

Benefits from Secretariat Economists’ Risk Management Services:

    • Basel II: The forthcoming implementation of the Basel II Accord is paving the way for financial institutions to manage risk proactively. This, in turn, is providing incentives for banks of all sizes to enhance their risk measurement and management capabilities.

Secretariat Economists offers the most comprehensive solutions to assess the financial and strategic impact of Basel II and then implement ongoing policies, systems, and procedures to optimize a bank’s risk management function.

    • Regulatory Compliance: Banks operating under a cease and desist order or other written agreement with regulators can face severe restrictions on their activities or even seizure by regulatory authorities. Such operating restrictions often involve policies and procedures related to risk. Compliance with regulatory directives, however, is often cumbersome and quite difficult within a short time period.

Secretariat Economists offers full assistance with satisfying the requirements outlined in regulatory directives in areas such as strategic and profit plan development, loan review, loss exposure, and overall risk management.

    • Credit Decision Making: While information on large public companies is easily accessible, most financial institutions struggle with the process of analyzing and monitoring smaller, private entities, which usually account for the majority of borrowers. In addition, many of the deals involving smaller companies contain unique and complex characteristics that cannot be incorporated into standard software applications. As a result, firms have been aggressively seeking robust internal quantitative credit scoring models. The core of any credit decision-making system is the scoring analytics. Secretariat Economists offers the most advanced and customizable methods necessary to create applicable credit scoring systems and analysis. In addition to the scoring analytics, institutions also face the challenge of determining the appropriate price points at which to offer or refuse credit. If the threshold is too high, lenders lose out on potentially valuable customers. If the threshold is too low, lenders are not properly compensated for the risks to which they are exposed. In addition, important consideration must be given to the interrelation of obligors within a firm’s portfolio in order to properly assess the credit decision.

Secretariat Economists offers detailed review, analysis and optimization of a firm’s credit decision-making criteria and credit pricing process.

    • Corporate Hedging: In today’s complex business environment, both financial and non-financial firms are exposed to a broad array of risks. The decision by a corporation to hedge varies by the type of exposure, duration of the hedge, the type of hedging instruments available, and the overall goals of management. The challenge to senior management is determining and implementing an adequate hedging strategy that meets the goals and objectives outlined by the firm.

Secretariat Economists offers full examination of a firm’s risk exposure including thorough analysis and implementation of proper hedging strategies.

    • Energy Markets: The restructuring and deregulation of energy markets have opened the need to understand and mitigate a wide variety of risks affecting both sellers and buyers of energy. A power generator has to manage risks related to fuel, inputs, plant operation, and generation across several markets clearing sequentially across commodities, locations in the transmission system, and time periods in the dispatch. A power grid owner has to understand the direction, magnitude, and frequency of transmission constraints. A trader has to contend with uncertainties that could cause energy prices to spike. A load-serving utility has to make long-term prudent procurement decisions that have to pass regulatory scrutiny. A manufacturing enterprise has to design an appropriate power contract for the most energy-vulnerable part of its production process. Energy market players can address these risks by holding options, and the option traders themselves need to analyze these risks in order to price their options.

Secretariat Economists offers complex modeling and analysis of various energy commodity markets in order to assist energy buyers and sellers in the design and implementation of adequate risk management and pricing programs.

    • Structured Finance: Many organizations are offering certain financial products and services, such as insurance or investment products, for the first time. Moreover, newly created financial products or unique pricing schemes are being introduced on a regular basis. Many of these new offerings, however, bring with them complex characteristics that may conceal some of the consequences of their introduction. These products, whether new to the firm or to the industry, require extensive analysis in order to determine their feasibility and overall impact on the organization, its risk profile, and its bottom line.

Secretariat Economists offers complete analysis and proper due diligence of new product offerings including market/customer analysis, pricing, risk exposure, and profitability.

    • Employee Stock Options: The proposed expensing of employee stock options has firms scrambling to assess the requirements set forth by the Financial Accounting Standards Board. That is, each particular firm will need to analyze and establish the most appropriate pricing framework and applicable valuation technique. The various pricing methods allowable by FASB, however, entail quite different data, analysis, and estimation requirements. The underlying standard is that the value be “based on established principles of financial economic theory.” These requirements, coupled with firm-specific characteristics, will drive the relevant pricing framework.

Secretariat Economists offers full and detailed analyses to determine the appropriate option pricing methodology (i.e. closed form, lattice, etc.) including implementation of proper option pricing tools and techniques.



Economists at Secretariat Economists are some of the leading experts worldwide on applied game theory relating to auctions, and we have applied this expertise to auction consulting projects relating to:

  • Support for participants in high-stakes auctions
  • Market design and auction administration
  • Analysis of antitrust concerns, such as collusion or alleged collusion, in auctions
  • Development and facilitation of procurement auction procedures

Management Consulting


Executives frequently face problems requiring technical skills that are not available within their organization. Or, in many cases, an outside analysis is needed to provide an objective assessment of a strategy or problem. This is especially true for companies facing turbulent competitive environments or unusual strategic problems.

Secretariat Economists combines institutional knowledge of industries with strong modeling and statistical capabilities to offer research services for strategic planning, marketing, and other corporate functions.


Secretariat Economists’ expertise is in those areas of management consulting in which mastery of the principles of microeconomics, competition and the functioning of markets is essential. These areas include strategic planning, competitor analysis, global strategy, and corporate strategy. Secretariat Economists consultants have:

  • Evaluated possible worldwide acquisitions by an expanding multinational corporation
  • Analyzed the effects of a new distribution channel on sales through the pre-existing channel and on overall profitability for an international manufacturing company
  • Evaluated the effect of Department of Commerce and International Trade Commission dumping investigations on the attractiveness of a foreign takeover candidate
  • Proposed and evaluated a telecommunication firm’s greenfield entry into a related line of business
  • Analyzed the consolidation and rationalization of hospital services and estimated expected cost savings
  • Assessed a Fortune 500 manufacturer’s cost position and satisfaction of customer purchase criteria relative to its major international competitor
  • Determined the feasibility of a quasi-public corporation’s entry into a new line of business given its proposed pricing schedule
  • Identified a profit-maximizing strategy for rationalizing industrial capacity following a major corporate acquisition
  • Conducted an educational retreat for senior management of a major communications company outlining the probable impact and best responses to several technological innovations affecting the industry
  • Led review and discussion of a firm’s pricing strategies

Transfer Pricing


Multinational companies face a unique set of opportunities and incentives to set transaction prices between related entities. Unlike transactions between unrelated parties, the prices of such “intercompany” transactions can potentially be manipulated by the parent company to shift profits to jurisdictions with lower tax rates. These companies must satisfy tax authorities that they are not evading taxes through the use of intercompany or transfer prices. To do this, they must show tax authorities that transfer prices resemble those that would prevail between unrelated parties in competitive markets. This so-called “arm’s-length standard” is the foundation for transfer-pricing regulations around the world.

As the arm’s-length standard implies, analysts typically look to similar transactions between unrelated parties as a benchmark for assessing intercompany transactions. Virtually all of the transfer-pricing methods refer in some way to unrelated transactions as the basis for setting intercompany prices. The characteristics and incentives surrounding such unrelated transactions, as well as the profit derived from them by unrelated parties, provide a starting point for setting transfer prices that satisfy the arm’s-length standard.

Analysis of intercompany transactions and transfer prices requires developing an in-depth understanding of the functions performed and risks assumed by the different related entities. It also demands a detailed review of the markets in which the intercompany transactions take place. This is true whether the product in question is a tangible good, an intangible piece of intellectual property, or an intercompany service.


Secretariat Economists professionals are highly qualified to perform the kinds of analyses required to develop and support acceptable transfer prices. With their strong background in microeconomics and industrial organization, Economists at Secretariat Economists are experts in assessing the kinds of firm and market-specific factors that can affect transaction prices. Secretariat Economists professionals have worked in a broad range of industries, and can apply that industry experience and knowledge to transfer-pricing analyses. Moreover, by working closely with clients, Secretariat Economists professionals can develop transfer-pricing strategies that satisfy both corporate objectives and the relevant tax authorities.

Secretariat Economists professionals have experience in all aspects of transfer-pricing analysis, from tax planning and developing global tax strategies, to assisting taxpayers under audit, to supporting clients facing litigation in Tax Court or other venues.

Labor and Employment Monitoring and Audits


In addition to litigation-related consulting, clients often request Secretariat Economists professionals to audit their workforce and employment decisions even in the absence of litigation in order to ensure compliance and equity.  Employers have an incentive to monitor employment decisions such as promotions, pay raises, and job assignments not only to protect themselves against future litigation, but also to increase the productivity of their existing workforce.

In addition to monitoring decisions relating to compensation, selection and terminations, economists at Secretariat Economists also review compliance with the federal and state wage/hour laws that regulate overtime, minimum wage and the provision of meal and rest breaks.  Our experts are experienced in identifying potential areas of concern and alerting clients before litigation occurs.

Examples of Audits and Monitoring Engagements include the following:

  • Multiple clients have asked Secretariat Economists professionals to ensure that their proposed re-mapping of salary grades to broader salary bands did not result in women and minorities being disproportionately placed in the lower-paying bands.  Our statistical analyses isolated the specific areas of this company where this would have happened, allowing for the company to adjust their decisions prior to implementation.
  • A global healthcare company retained Secretariat Economists professionals to conduct a comprehensive audit of the major employment decisions at a global healthcare company, including promotions, terminations, performance evaluations, compensation, and disciplinary actions.  As part of the analyses, salary remediation recommendations for sub-groups of employees were calculated and provided to affected employees.
  • A financial services company asked Secretariat Economists professionals to consolidate several electronic databases in order to calculate the number of overtime hours and pay in advance of a reclassification of exempt status.
  • Secretariat Economists professionals have multiple retentions for a variety of clients relating to potential adverse impact by race/ethnicity and gender of employees’ annual performance rating assignments and the associated merit increases or bonus payments.  Despite the complexity of these analyses, the recommended employee-specific adjustments are often calculated in an expedited manner so that they can be applied in conjunction with other regularly scheduled processes.
  • Before implementing a large number of layoffs, a health care company asked Secretariat Economists professionals to review the proposed decisions to ensure there was no adverse impact on the affected employees with respect to age, gender or race/ethnicity.
  • A financial services provider asked Secretariat Economists professionals to review the available data to ensure that employees were properly classified under California’s inside sales exemption.
  • A multi-site retailer retained Secretariat Economists to review the electronic sales transaction data in relation to the times employees were on their meal and rest periods to determine if any stores were not in compliance with company policies and FLSA requirements.