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Risk Viewpoint

A time for stress: The challenges facing Europe's banks

In November the European Central Bank (ECB) will officially take overall responsibility for the supervision of major European banks under the Single Supervisory Mechanism. This is one of the biggest structural changes in the financial-services regulatory environment in the past 30 years. Europe's banks are facing tough new minimum that they need to make some major changes.

Emerging markets
report | McKinsey Working Papers on Risk, No. 56

Risk in emerging markets: The way forward for leading banks

June 2014—This paper looks at challenges facing emerging market banks after a decade of outstanding growth and makes a series of recommendations.

Introducing a holistic approach to stress testing
report | McKinsey Working Papers on Risk, No. 55

Introducing a holistic approach to stress testing

June 2014—This paper describes the seven steps that can help banks to develop better stress tests. The seven steps are: data preparation, strategic PMO, robust methodologies, superior portfolio analytics, persuasive communication, macro-scenarios and correlations, as well as the stress-testing model.

Europe's wholesale gas market
report | McKinsey Working Papers on Risk, No. 54

Europe's wholesale gas market: Innovate to survive

May 2014—This paper describes the forces at work in the European Gas market and how the risk against a structural long position has increased and how major gas distributors can react also through improved product design.

Enterprise-risk-management practices
report | McKinsey Working Papers on Risk, No. 53

Enterprise-risk-management practices: Where's the evidence?

February 2014—This paper reports the findings of a 2012 survey conducted by McKinsey & Company and the working group for corporate growth and internationalization of the Schmalenbach Society (the oldest German nonprofit organization for the exchange of ideas among business practitioners and academics).

forward-looking risk management
report | McKinsey Working Papers on Risk, No. 52

A risk-management approach to a successful infrastructure project: Initiation, financing, and execution

November 2013—Large infrastructure projects suffer from significant undermanagement of risk throughout the life cycle of a project. This working paper explains what a comprehensive “through the life cycle” risk-management approach requires and also outline the benefits of, and processes involved in, effectively implementing a risk-management capability.

cash flow at risk
report | McKinsey Working Papers on Risk, No. 51

Strategic commodity and cash-flow-at-risk modeling for corporates

November 2013—This working paper describes how corporates have been adapting and evolving their use of quantitative models derived from the use of VAR models by financial services companies and banks. Corporates have developed sophisticated commodity risk models which they are using to inform strategic decisions based on the impacts on cashflows of different exposure sets. The paper explains how these models can deliver value, and also sets out in simple terms how a CFAR model can be built and deployed.

Strategic choices for midstream gas companies
report | McKinsey Working Papers on Risk, No. 50

Strategic choices for midstream gas companies

September 2013—This working paper examines the strategic dilemmas facing European midstream gas companies and suggests ways they can address their challenges by applying a risk-adjusted portfolio approach called Gas Portfolio @ Risk. The paper explains how the market has evolved such that midstreamers face a strategic squeeze from both downstream and upstream gas companies. A portfolio approach has the potential to save them from large future losses.

Hypotenuse and corporate risk modeling
report | McKinsey Working Papers on Risk, No. 49

The hypotenuse and corporate risk modeling

August 2013—This working paper uses the concept of the hypotenuse to explain how companies facing several risk variables often overlook the fact that one or two of them can have a disproportionate influence in relation to the others. In mathematics, the long side of a right-angled triangle influences the hypotenuse much more than the short side. Ditto, when modeling risk or volatility factors, companies should consider the proportions represented by the different factors, because the outcomes can be greatly affected.


Managing when vendor and supplier risk becomes your own

July 2013—Financial institutions are being held accountable for the actions of their suppliers. A new approach can help to identify and manage sources of third-party risk.

Bank liquidity and funding
report | McKinsey Working Papers on Risk, No. 48

Between deluge and drought: The future of US bank liquidity and funding

July 2013—This working paper discusses the funding structure of large US financial institutions which are undergoing a dynamic shift.

Next-generation energy trading
report | McKinsey Working Papers on Risk, No. 47

Next-generation energy trading: An opportunity to optimize

May 2013—The paper explores the dilemma facing energy trading companies as they address the legacy issues of complex systems, high costs and often unclear governance structures. It looks at some of the main ways the trading firms can reduce their costs and their complexity, suggesting that there are large potential economic gains to be had. Among their competitors are investment banks with much greater cost efficiencies in their trading operations. It's tough out there!

Managing third-party risk in a changing regulatory environment
report | McKinsey Working Papers on Risk, No. 46

Managing third-party risk in a changing regulatory environment

May 2013—It makes pretty sobering reading – financial services firms in the US face an unprecedented extension of their risk management – not only are they responsible for what they do themselves, but they now have to consider their suppliers and vendors. If these third parties get it wrong, then the bank or credit card firm can find itself on the hook to regulators and consumers for what has happened at one remove. It adds up to a massive expansion of the routine due diligence required by financial services firms and an opportunity for truly innovative conversations with our clients on an unanticipated aspect of risk management.

Liquidity and funding situation in Asia
report | McKinsey Working Papers on Risk, No. 45

Between deluge and drought: Liquidity and funding for Asian banks

April 2013—Strategic management of funding and liquidity will play an increasingly important role for Asian banks. Management should start preparing now to face future challenges, including maturity mismatches and the overall need for long-term funding to support growth.

A roadmap for banks
report | McKinsey Working Papers on Risk, No. 43

Getting to ERM: A road map for banks and other financial institutions

March 2013—This working paper contains a diagnostic framework for assessing an organization's ability to manage risk at the enterprise level. McKinsey's ERM framework can help to shape discussion by senior management of ERM capabilities and shortcomings.


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