This report identifies an outstanding issue in my organization: lack of proper risk management department. As a newly appointed Risk Manager I prepared an active solution plan, which I present below. I first identify the problem in my organization, and then present a solution and steps toward its implementation. Furthermore, I discuss management’s involvement in the process. Finally, I discuss the expected results.

1. 1
Managing
Organizational
Behavior
Helios
Padilla
Mayer,
PhD
31
May
2012
Human
Resource
Task:
“Efficient
Team
Building
Process”
This
report
identifies
an
outstanding
issue
in
my
organization:
lack
of
proper
risk
management
department.
As
a
newly
appointed
Risk
Manager
I
prepared
an
active
solution
plan,
which
I
present
below.
I
first
identify
the
problem
in
my
organization,
and
then
present
a
solution
and
steps
toward
its
implementation.
Furthermore,
I
discuss
management’s
involvement
in
the
process.
Finally,
I
discuss
the
expected
results.
A.
IDENTIFICATION
OF
PROBLEM
My
company
(Asset
Management
Servicing)
provides
a
range
of
collective
portfolio
management
services
for
UCITS
IV
regulated
funds1
in
Luxembourg.
While
company’s
headquarters
are
in
London,
the
Luxembourg
subsidiary
is
dealing
specifically
with
portfolio
management
services
and
fund
administration.
With
the
new
asset
fund
regulation
that
needs
to
be
exercised
in
practice
as
of
December
2011,
the
company
had
to
introduce
a
risk
management
department
which
covers
the
following
tasks:
• developing
and
providing
regular
updating
of
risk
management
process
for
UCITS
IV
managed
Funds;
• preparing
risk
assessment
of
UCITS
IV
Funds,
including
market,
counterparty,
liquidity
and
operational
risk;
• testing
and
maintaining
VAR
model
on
day-­‐‑to-­‐‑day
basis,
including
monitoring
and
controlling
of
VAR
limits,
back
testing
and
stress
testing;
• developing
and
implementing
asset
and
liability
liquidity
risk
methodology;
• assessing
impact/changes
of
the
risk
profile
of
the
Funds
on
any
changes
in
regulation
in
UCITS
IV.
1
UCITS
(Undertaking
for
Collective
Investment
in
Transferable
Securities)
IV
directive
sets
a
regulatory
framework
for
the
EU
Investment
Fund
Industry,
with
emphasis
on
funds
domiciled
in
Luxembourg.

2. 2
I
have
been
hired
as
a
Risk
Manager
last
year,
however,
due
to
internal
organizational
issues
(such
as
a
temporary
hiring
freeze),
the
risk
management
department
has
not
been
established
yet.
With
an
increasing
number
of
managed
funds
and
other
daily
activities
that
fall
under
competences
of
Risk
Manager,
it
is
becoming
very
difficult
to
handle
all
activities
that
should
be
performed
in
one
department,
but
under
the
current
structure
all
the
work
burden
falls
under
my
responsibility.
The
senior
management
does
not
want
to
engage
at
this
stage
in
a
formation
of
independent
risk
department,
however,
the
real
problem
that
arises
from
that
action
is
that
the
quality
of
risk
management
activities
may
be
jeopardized.
If
risk
management
process
is
not
done
correctly,
the
key
risk
event
is
loss
related
to
the
inaccurate
risk
assessment
of
the
client
portfolio.
This
loss
can
be
expressed
as
financial
loss
for
potential
investors
in
the
selected
portfolio.
Furthermore,
loss
for
institution
is
represented
in
lower
revenues
as
the
number
of
clients
that
the
institution
is
managing
will
decrease
once
it
becomes
clear
that
the
institution
is
not
capable
of
providing
an
accurate
risk
assessment.
The
initial
thought
how
to
approach
this
issue
was
to
outsource
a
risk
management
function
(an
in-­‐‑house
risk
manager
world
delegate
tasks
to
an
out-­‐‑
house
risk
management
team).
Normally,
this
could
work
out
to
be
the
most
cost-­‐‑effective
way
of
doing
things.
However,
in
our
case
this
is
impossible
due
to
a
sensitivity
of
client
relationship
and
information
confidentiality.
An
alternative
proposal
was
also
to
delegate
part
of
risk
management
activities
to
headquarters
in
London,
which
has
already
an
established
risk
management
department.
However,
UCITS
risk
management
is
country
specific
(Luxembourg-­‐‑
based
subsidiary
needs
to
follow
specific
regulations
and
requirements
set
for
Luxembourg
financial
markets)
and
delegating
a
part
of
risk
management
process
to
London
office
will
involve
additional
training
of
existing
personnel.
That
would
work
only
in
case
that
the
specifically
trained
personnel
would
be
eventually
transferred
to
Luxembourg
to
form
a
new
risk
management
department
as
their
skills
will
be
really
very
specific.
However,
in
our
case,
we
are
seeking
a
temporary
solution
and
therefore
it
is
not
cost-­‐‑and
resource-­‐‑

3. 3
allocation-­‐‑effective
to
provide
specific
training
to
personnel
that
will
not
use
this
knowledge
after
a
permanent
solution
in
Luxembourg
is
put
in
place.
B.
PROPOSED
SOLUTION
As
a
member
of
Luxembourg
management
board,
I
proposed
that
we
create
an
“interim”
risk
management
office,
which
will
consist
of
selected
existing
Luxembourg
company
staff,
now
allocated
to
various
departments,
which
will
be
fully
devoted
to
supporting
risk
management
activities.
The
main
idea
of
creating
an
interim
office
is
to
better
serve
customers
by
building
an
institutional
framework
that
will
increase
the
ability
of
employees
to
participate
in
problem
solving
and
decision-­‐‑making.
An
increased
participation
will
also
benefit
employees
as
it
will
result
in
more
support
in
implementation
of
tasks,
and
even
more
important,
more
ownership
of
decisions,
processes,
and
changes.
The
departments
that
are
considered
to
be
engaged
in
formation
of
the
interim
office
are
(1)
Transfer
Agency,
(2)
Fund
Accounting,
(3)
Compliance
Monitoring
and
(4)
Corporate
Services.
These
departments
were
chosen
on
the
basis
of
current
interaction
with
the
Risk
Manager.
Transfer
Agency
integrates
registrations,
dealings,
settlements
and
reporting
for
investors,
including
data
providing
and
reporting
of
subscriptions
and
redemptions.
Fund
Accounting
provides
a
Net
Asset
Value
(NAV)
calculation
for
managed
funds.
Compliance
team
prevents
trading
errors,
crosschecks
portfolio
asset
composition
and
monitors
any
NAV
errors.
Corporate
Services
provides
a
comprehensive
board/investment
committee
and
meeting
support.
For
the
purpose
of
risk
assessment,
Risk
Manager
(currently)
receives
relevant
data
files
from
departments
and
proceeds
with
liquidity,
market,
counterparty
and
operational
risk
assessment.
This
is
a
lengthy
process
as
each
fund
consists
of
tens
of
sub-­‐‑funds,
and
each
of
sub-­‐‑funds
could
contain
up
to
2000
individual
securities
and
derivatives.
Thus,
at
the
moment,
the
major
part
of
Risk
Manager’s
time
is
allocated
into
assessing
asset
liquidity
risk
of
individual
asset
classes.
Furthermore,
files
received
by
the
above
mentioned
departments
are
not
sufficient
as
not
all
information
needed
is
provided.
The
Risk
Manager
must
engage
into
data
search
and
download
from
Bloomberg
in
order
to
complete
his
work.
All
this
process
could
be
simplified
by
involving
an
IT
department
whose
main
task
would
be
the
automatization
of

4. 4
liquidity
risk
assessment
by
directly
feeding
information
provided
by
departments
and
Bloomberg
into
the
risk
assessment
framework
already
developed
by
the
Risk
Manager.
The
decision
to
temporarily
reallocate
some
staff
to
the
new
function
was
done
on
the
basis
of
the
function
efficiency
study.
The
management
estimated
how
much
time
staff
effectively
spends
on
their
delegated
activities
and
in
some
cases
it
was
shown
that
staff
is
underemployed.
This
excess
time
could
be
easily
translated
into
new
activity,
however,
under
the
assumption
that
staff
is
also
willing
to
accept
the
change
in
their
daily
working
tasks.
What
I
am
proposing
to
do
is
to
create
an
efficient
team
by
pulling
together
resources
from
different
departments.
In
order
for
team
to
fulfill
its
intended
role
of
performing
the
risk
management
function
(under
my
leadership),
it
is
critical
that
the
team
understands
its
goal,
mission,
and
reason
for
existing.
C.
ACTIONS
TAKEN
The
proposed
idea
of
building
an
efficient
team
was
put
forward
to
the
management
decision.
My
proposal
consisted
from
several
steps,
which
I
briefly
discuss
below.
C.1
REASONS
FOR
TEAM
BUILDING
This
point
has
been
already
discussed
in
Section
A,
where
I
introduce
the
main
purpose
of
establishing
a
risk
management
team.
C.
2
STEPS
TO
BUILD
AN
EFFICIENT
TEAM
Define
Expectations.
It
is
important
that
team
members
know
why
the
team
has
been
created,
what
performance
expectations
are
and
what
are
expected
outcomes.
The
team
needs
to
know
that
the
organization
is
willing
to
support
the
establishment
of
team
with
time
and
financial
resources.
The
reasons
that
will
be
communicated
to
the
team
are
already
stated
in
Sections
A
and
B.
Define
Context
of
Work.
Team
members
need
to
understand
why
they
have
been
chosen
to
participate
on
the
team.
They
must
be
able
to
relate
the
team’s

5. 5
importance
to
the
accomplishment
of
corporate
goals.
Team
will
consist
of
individuals
from
previously
described
departments
who
are
already
now
working
with
me
in
the
initial
stages
of
risk
assessment.
Define
Expected
Commitment.
It
is
very
important
to
make
sure
that
team
members
want
to
participate
on
the
team
and
are
not
forced
into
this.
They
need
to
understand
and
also
be
convinced
that
the
team
mission
is
important.
Furthermore,
they
must
be
committed
to
accomplishing
the
expected
outcomes
and
even
more
important,
team
members
must
perceive
their
involvement
as
something
valuable
to
their
own
careers
and
something
that
will
lead
to
their
skills
development.
In
my
case,
I
had
informal
talks
with
potential
team
members
and
explained
them
the
need
to
create
the
interim
office.
Everyone
was
willing
to
participate
as
they
felt
that
devoting
their
working
time
to
one
specific
activity
will
benefit
their
career
development.
Define
Competence.
Team
members
must
possess
the
knowledge,
skill
and
capability
to
address
the
issues
for
which
the
team
was
formed.
Team
members
must
be
assured
that
if
this
is
not
entirely
the
case;
the
team
will
have
sufficient
resources,
strategies
and
management
support
needed
to
accomplish
the
prescribed
tasks.
As
potential
team
members
already
participate
in
the
risk
assessment
process,
their
competences
have
been
already
tested
and
proven
to
be
able
to
take
up
the
specific
tasks
immediately.
Define
Mission.
The
team
needs
to
have
its
own
mission,
vision
and
strategies
to
accomplish
the
task.
The
management
must
define
and
communicate
goals,
anticipated
outcomes
and
contributions,
timelines,
how
the
outcomes
of
the
work
will
be
measured.
The
team
must
feel
reassured
that
it
will
have
management
support
and
leadership
to
complete
the
tasks.
As
I
will
be
leading
the
team,
members
know
that
there
is
a
clear
vision
why
the
interim
office
has
been
established.
They
also
feel
confident
that
the
management
is
behind
this
decision,
otherwise
the
proposal
would
not
be
discussed
at
the
board
meeting.
Define
Control.
Team
members
must
have
enough
freedom
to
feel
that
they
can
work
independently
towards
accomplishment
of
their
tasks.
However,
they
need
to
understand
their
boundaries
and
they
need
to
feel
that
(in
my
particular
case)
the
Risk
Manager
is
the
leader
and
outcomes
must
be
reported
to
him
and
are

6. 6
controlled
by
him.
It
is
very
important
that
the
team’s
reporting
relationship
and
accountability
is
clearly
understood
by
the
rest
of
the
organization.
Define
Cooperation.
Team
members
must
understand
that
teamwork
is
a
group
process
and
requires
an
effective
interpersonal
engagement
by
everyone.
All
team
members
must
understand
their
roles
and
responsibilities,
as
all
as
the
role
of
the
team
leader
(Risk
Manager
in
my
particular
case).
Each
team
member
has
a
specific
task
in
the
full
process,
but
they
are
aware
that
there
is
continuity
involved
–
if
one
does
not
provide
her/his
input,
others
cannot
continue
working.
Ensure
Clear
Communication.
Team
members
must
be
absolutely
clear
about
the
priority
of
their
tasks.
It
is
desirable
that
teams
receive
performance
feedback,
but
at
the
same
time,
team
members
must
be
allowed
to
provide
honest
feedback
for
their
team
colleagues
as
well
as
the
team
leader.
Clear
and
honest
communication
must
be
encouraged
within
the
team
and
diverse
opinions
need
to
be
discussed
and
properly
assessed.
Team
leader
must
make
sure
that
all
occurring
conflicts
are
immediately
addressed
and
an
efficient
solution
is
provided.
The
purpose
of
interim
office
is
exactly
that:
to
prioritize
the
importance
of
risk
management
function
and
prioritize
the
execution
of
tasks
related
to
risk
management.
Encourage
Creative
Brainstorming
Process.
Team
members
must
be
assured
that
organization
values
creative
thinking;
new
ideas,
unique
solutions
and
proper
awards
will
be
given
to
people
who
contribute
to
improvements.
Of
course,
if
organization
supports
creative
thinking,
it
must
also
assure
that
proper
training
is
offered
and
access
to
material
that
stimulates
new
thinking
is
given.
In
our
interim
office,
this
process
will
be
extremely
important
because
we
plan
to
automatize
the
risk
management
function
(involvement
of
IT
department).
At
the
beginning,
we
will
hold
daily
meetings
to
brief
IT
on
expected
outcomes
and
benefit
from
their
suggestions
on
how
to
facilitate
the
process.
Define
Responsibility.
Team
members
need
to
feel
responsible
and
hold
accountable
for
team
achievements.
However,
the
team
culture
must
be
managed
towards
resolving
problems
and
not
finger
pointing.
The
team
will
also
feel
encouraged
to
increase
its
efficiency
if
it
feels
that
team’s
performance
is
properly
rewarded
within
the
organization.
As
each
member’s
task
is
specific,

7. 7
everyone
will
be
held
accountable
for
her/his
provided
output,
however,
also
properly
rewarded
within
the
organization.
Define
Coordination.
Team
members
need
to
know
that
they
are
coordinated
by
the
Risk
Manager
and
that
direct
reporting
line
is
the
Risk
Manager.
C.3
MANAGEMENT’S
EXPECTED
INVOLVEMENT
Management
needs
to
be
supportive
of
this
idea
and
also
commit
to
effective
cooperation.
Management
must
be
aware
that
the
team’s
authority
is
the
Risk
Manager,
who
is
entitled
to
make
recommendations
whom
to
chose
as
team
members,
to
define
implementation
plan
and
team
tasks,
and
timelines
to
provide
expected
outputs.
At
the
last
Board
meeting,
the
idea
of
interim
office
has
been
presented
and
is
currently
under
consideration.
Management
is
supportive
of
the
proposal
and
also
committed
to
actively
participate
in
the
execution.
Management
is
expected
to
meet
regularly
(general
practice
is
once
a
week)
to
review
realized
outputs,
compare
them
with
expected
outputs
and
assure
that
both
the
team
and
the
organization
are
consistently
aligned.
Team
leader
(Risk
Manager)
is
held
accountable
towards
the
organization
for
tasks
timelines,
commitments
and
results.
D.
EXPECTED
RESULTS
The
purpose
of
creating
an
interim
risk
management
office
is
to
ensure
an
uninterrupted
and
qualitative
implementation
of
risk
management
assessment
for
clients.
Creation
of
interim
office
by
pulling
together
staff
from
different
department
that
already
contribute
to
the
risk
management
process
is
crucial
for
two
reasons:
(1)
concentration
of
activities
within
one
group
improves
performance
efficiency,
(2)
clear
identification
of
tasks
and
understanding
the
purpose
of
office
creation
will
increase
quality
of
work
and
individual
employees’
satisfaction
at
work.
Just
selecting
appropriate
people
for
the
given
task
is
not
enough
to
ensure
an
improvement
in
efficiency.
People
need
to
be
managed
correctly
and
their
ability

8. 8
needs
to
be
explored
in
a
correct
way
that
it
will
produce
optimal
and
maximum
outcomes.
Furthermore,
to
ensure
that
team
members
to
perform
effectively,
they
will
need
constant
training.
People
can
come
to
work
with
qualifications
(degrees)
but
these
are
usually
not
enough
to
support
a
full
career.
People
can
also
lose
or
forget
their
skills
if
they
do
not
receive
updates.
In
certain
industries
(like
financial
services),
there
are
so
many
innovations
in
the
field
that
people
need
regular
awareness
sessions
to
be
able
to
follow
daily
tasks.
Last
but
not
least,
in
order
to
keep
team
members
productive
and
happy
there
need
to
be
incentives.
Normally
incentives
come
in
forms
of
financial
bonuses
and
benefits
to
reward
staff
members
for
their
work.
However,
an
open
recognition
(within
organization)
of
peoples’
efforts
is
also
very
influential
and
motivational,
especially
in
the
current
situation
where
financial
incentives
have
been
trimmed
down
amid
financial
crisis.