What can be even more useful than Excel in finance? How about Excel with powerful and sophisticated add-on visualization tools?

Oculus, a Canadian firm whose principals survived acquisitions and spinoffs from Visible Decisions, has developed a toolkit of graphical displays that work from Excel data.

“Over the years Excel has added advanced charting features,” said Richard Brath, director of marketing at Oculus. “However, interactive data representation can provide greater utility and help users assess data rapidly.”

Risk Capital, a consulting firm in New York, is one of the few financial firms using Oculus who will talk about it.

“We find visualization is incredibly helpful in getting people to understand the relationships between risk and reward,” said Brett Humphreys, a co-founder and managing director who specializes in energy risk. “Risk is complicated and most people do not have a good understanding of it. Visualization helps them comprehend it more intuitively.”

Humphreys works with commodity producers and traders who need to understand risk to improve profitability. With interactive visualization, users can see how their margins change with changes in market prices.

Humphreys, who has a Ph.D. in mineral economics, recalled a presentation he did to a mining company that operates 100 mines around the world.

“Looking at all those pieces separately is difficult. If I give you a table of 100 numbers and tell you to find the pair that doesn’t fit, you look and get bored. But if I give you a graph plotting pairs, you will find most are on the line and you will spot the one off in left field very quickly. Then you can ask what is different and look at the underlying data.”

Information contained in large tables can be difficult for most people to understand. The more data presented, the more that problems can be hidden by the sheer number of numbers. “If there are more than 50 elements in a table, most people don’t have the time to get through it,” he said.

The most challenging audience to whom Humphreys must explain concepts of risk is senior management and board members. They typically don’t have much time, and the more senior they are the less likely they are to admit they don’t understand a topic. Yet compliance regulations require that they approve the company’s risk management policies.

“You have to take extra time to make sure they understand,” said Humphreys. “They don’t have a lot of time to spend learning this stuff.”

That’s where Oculus tools are especially useful. He can change the views of data quickly, show the results of different risk calculations, and drill down into underlying numbers in Excel through the graphics.

Visualization can also create problems if the visualization tool doesn’t fit the needs of the users or if there are errors in the underlying data. Part of a consultant’s task is to choose the appropriate graphical tools for a topic. But it takes time and energy to examine data presentation to find visualization tools that make information easy to grasp, said Humphreys, and many presenters don’t take the time to do it well. Users also have to beware of the tendency to look for patterns that might not exist.

Still, he said, Risk Capital finds that using data visualization intelligently is very helpful in educating clients. The graphical presentation of complex data often provides layers of information. The casual consumer might glance at a chart and see that stock prices are rising, while a more sophisticated user might understand that a thickening line shows a growing spread in bid/ask while different colors may indicate underlying volumes.

Oculus can provide a visual structure to bring together different types of metrics even if they have different scales and frequencies, said Brath. A single screen can contain multiple representations, showing summaries, intermediate aggregations, and specific details. The tool also provides interaction so users can get to the data below the images, change numbers, and see the results presented graphically. Visual correlation between the drivers and inputs to the report indicate causal effects.

These types of visualizations are ready to take off in the risk management space because calculation engines have become more powerful and can bring disparate portfolio and simulated information together in a way that fits into sensible graphical presentation, said Hugh Richards, vice president at Quadrus Financial Technologies in Vancouver, and a veteran of risk technology firms including Infinity.

“The issues of visualization are very, very important for anyone who needs to intuitively understand the landscape of risk.”

Risk, trading, and treasury managers have historically been ready for visualization tools, he added. “But the calculations available at the time – such as value-at-risk (VAR), P&L, notional and other portfolio exposures – were so disjointed, that once the disparate information was put together in a multiple dimensional representation, traders and risk managers agreed that it was pretty, but far too busy to do anything for them.”

Quadrus Financial Technologies has built a scalable calculation engine that can perform very fast multidimensional calculations and deliver results to the user in a consistent landscape. It sees a growing market in credit exposure analysis and in credit derivative markets, where users need to spot credit sensitivities in their portfolios and then hone in on the exposures visually across transaction, counterparty, time step, and scenario dimensions.

“If the information is logically aligned for the consumer – the trader or risk manager – they will be able to look at it and act effectively,” Richards said.

The Quadrus engine runs in an array of deployment environments that include simple integration with Excel, larger deployments such as portfolio enterprise and trading risk management offerings, and with integrated in-house or third party solutions.

Risk management application providers are learning to bring disparate data into a single result set that traders and risk managers can use intuitively.

“Exposure visualization is a competitive weapon right now,” Richards said.

www.oculusinfo.com

www.quadrusfinancial.com

www.riskcapital.com