If I were to write a practical guide on consumer loan credit risk management, this is what the content page would look like.

1. Fundamentals
   1. The Art and Science of Decision-Making
   2. Fundamentals of Interest and Loan
2. Key Objective and Its Components
   1. The Balance Between Risk and Reward
   2. Commonly Used Risk Metrics
3. Prediction into the Future
   1. Estimating Long-term Impact from Short-term Outcome
   2. Creating Models of the Environment
   3. Estimating the Response from Interventions
4. Diversification and Portfolio Management
   1. Modern Portfolio Theory
   2. Basel Accord
5. Infrastructures that Facilitate Risk Management Practice
6. Other Aspects of Risk

Chapter 1: The Art and Science of Decision-Making delves into the most critical outcome of risk management—decisions. If there are no decisions to be made, risk becomes inevitable (assuming we are conducting business), rendering risk management unnecessary. This chapter also explores typical decisions in risk management, such as underwriting and setting credit limits. Decision-making is a science because it optimises particular objectives. Conversely, it's an art requiring a balance between exploitation and exploration. Merely exploiting known factors may not yield the best outcomes. We must venture into the unknown.

Chapter 2: Fundamentals of Interest and Loans examines the concept of interest, drawing insights from "The Impatience Theory of Interest: A Study of The Causes Determining The Rate of Interest" by I. Fisher. It is crucial to understand why customers are willing to pay for a product, the value it provides, and how its price is determined. This chapter also introduces the basics of financial instruments—loans, which, alongside equity, underpin other financial vehicles such as options.

Session 2: Key Objectives and Their Components discusses the primary goal of risk management, which is not to minimise risk but to maximise profit. The definition of profit can vary within an organisation—for instance, in terms of observation period and granularity (Product A only, or both Product A and B). This session also outlines typical components of revenue and cost and introduces commonly used risk metrics such as FPD, 3FPD, Vintage, and Flow Rate.

Session 3: Predicting the Future delves into the science behind decision-making in risk management, highlighting the mismatch between the timeliness of decisions and the duration of optimisation goals. For example, short-term risk can deteriorate rapidly during a financial crisis. Even though the optimisation goal might be a 12-month profit, immediate action is required based on the assumption that short-term risks will translate into long-term risks. Estimating the long-term impacts of short-term outcomes is critical. This session also covers typical models used in credit risk management, placing them within a broader decision-making framework rather than focusing on model development details. The final chapter discusses decision impacts, scientific methods for quantifying them, and how understanding responses can lead to better decisions.

Session 4: Diversification and Portfolio Management emphasises finance's core principle: resource allocation. Although I have not used modern portfolio theory in my career, it could offer valuable insights. Firstly, it might provide a framework for funding allocation across markets, different strategies, and even within user segments of the same portfolio. Secondly, it could facilitate objective monitoring of risk-adjusted rewards over time. The session's last chapter should explore the regulatory framework of risk, such as Value at Risk (VaR), which is outside my expertise.

Session 5: Infrastructure Facilitating Risk Management Practices. Since this guide is practical, it will cover the essential infrastructures for conducting risk management, including data platforms, decision engines, experiment platforms, and modelling platforms.

Session 6: Other Aspects of Risk highlights the limitations of this guidebook. Credit risk is just one form of risk; others include fraud, recovery, operations, etc.

After three years in the risk management industry, these are my learnings. This represents the branch of my knowledge tree, yet there is still much to explore and fill in the gaps.