PSD Operational Risk Event - June 2016

www.chapelleconsulting.comwww.psdgroup.com
Small is Beautiful
Risk Management in smaller firms
Ariane Chapelle

www.chapelleconsulting.com
Why manage risk? – Why do cars have breaks?
• Achievement
Risk Management is an accelerator
• Safeguarding
Risk Management prevents disasters
Source: Institute of Risk Management
2

Risk is not compliance
The value of risk management is in better decision-making. Risk decisions are
strategic decisions that do not follow simple rules. They are informed
judgement calls.

Definition of Risk
Exposure/Causes,
due to:
• Strategy
• Environment
Risks
• Turning into
incidents when
materialized
Impacts
• Financial, Non
financial
Controls
Risk is any adverse event that can happen and impede
the achievement of objectives
Event management
4

Small is Beautiful in Risk Management
A. Chapelle, Risk.net & Operational Risk, May 2016
5

6
Advantages of small size in risk management
Reduced co-ordination costs
Improved Communication
Facilitated top-down approach
Increased senior management involvement
More consistent framework
Time saving
Holistic view of risks

Objectives types and Risk Management: COSO
What are your objectives?

Emerging Risks
We can’t see around the corner… But we can see what’s on the horizon
8

Risk Drivers: Exposures and Vulnerabilities
Exposures
• Key distribution channels
• Main clients
• Main suppliers and third parties
• Critical systems
• Regulatory exposure
• Main drivers of revenues, drivers of
value
• Brand value
• ...
Vulnerabilities
• Weakest links
• Fragile systems
• Revenue channels at risk
• Systems or processes not integrated
• Parts of the business resistant to risk
management
• Small, unmonitored operations or
people
• Unmaintained systems
• BCP due for testing or updates
• ...
9

The Perils of a risk conscious CEO (or CRO)
Avoiding problems in the distance, being right sooner than others, can weigh on
your P&L, without being able to demonstrate the future losses prevented.

Have a robust risk appetite
Frame your decisions in the context of a commonly agreed and understood risk appetite
for the firm; an articulated and accepted compromise between prudence and profits.

Are you confortable with the risks you face?
What is your insomnia list? What is keeping you awake at night?

An Integrated Risk Management Framework
Risk Appetite statements
Qualitative
Quantitative – KPIs/ KRIs and risk limits
Overarching Statement
Defines the Colours
Calibrated impact
and likelihood scales
Defines the axes
Impact taxonomy
Inform
Risk
taxonomy
Likelihood
Likely
Possible
Unlikely
Rare
VL L M H
Impact
RCSA, P/I matrix
13
KRI dashboard

What would be your reaction to a given incident?
(will also give you insight
on risk assessment)

Exposure limits, control requirements and KRIs
Exposure
To limit or accept
Key Controls Key risks indicators
To design and test
To monitor and react
15

Environmental
Stretch
Failure Causal
A typology of Key Risks Indicators
Source: Chapelle, OR&R, 2013
16

Exposure
• Changes from external factors and changes to risk exposure (External Events)
• Changes in risk drivers, stakeholders, regulatory and competitive environment
Stretch
• Overload of human and machines
• Overtime and delays, stress at work and engagement (HR)
• Overcapacity of systems, overload, disruption and break down (Systems)
Failure
• Failed performance and failed controls
• KPI becomes a KRI when different than green
• Ineffective controls elevate risks (failed KCIs are KRIs)
Causal
• Metrics of risk drivers, both of impacts and likelihood,
• If different than the categories below: specifically linked to the features of a given organisation (Process)
Typology of KRIs
Source: Chapelle, OR&R, 2013

Human Error
‘We cannot change the human condition, but we can
change the conditions under which humans work.’
James Reason (2000)
If we accept human fallibility, we need to
rely on well-designed systems to
support us in the workplace.
And remove error traps wherever
possible.
18

Tone
Done at
the top
Tune in
the middle
Part of the
processes
How to embed a risk culture?
“People do what you do, not
what you say” -> lead by
example
“Tell people what to do, not
only what the objectives are
-> focus on key behaviours
Risk is about People,
Process, Systems and
External Events
-> focus on getting it right
by design

Putting it all together: a simple ORM Process
20

Traps to avoid for good risk management
Risk management frameworks are useful in daily operations, but
large incidents happen, in my experience, for three types of reasons.

Weakest link and the flaw of averages
Risk is observed by identifying individual deviations. Average is the first enemy of
risk management. Look for the weakest links and vulnerabilities in your business.

Inertia
Large losses don’t always come as a surprises; concerns existed, but failed to
be addressed on time. Procrastination is the second enemy of risk management.

Willful blindness
Too good to be true or too painful to consider; for many reasons we
chose, often subconsciously, to ignore the obvious… at our perils.

for your attention
Do not hesitate to be in touch for more information and
resources: ariane@chapelleconsulting.com

Global Banking and
Financial Services

PSD Group
PSD is a leading international board, management and executive recruitment consultancy.
Our reputation has been built upon delivering outstanding results and exceptional service levels.
PSD operates through a matrix structure organised by geography, function and industry sector.
Our consultants are subject matter experts in their chosen fields, they are experienced, thoroughly trained and,
importantly, passionate about their specialist fields.
We employ over 200 experienced consultants in seven offices across Europe and Asia.
During the last five years, we have placed candidates in 75 different countries.
We were recently awarded the Gold status by Investors in People and were congratulated for being an
"exemplar organisation with great people management practices".
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equity, real estate and institutional pensions.
General & Life Insurance
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advisory.
Investment, Corporate, Retail and Private Banking
Investment, commercial, retail banking, cards, payments, consumer
finance, general and life insurance & private banks. Our clients range from
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Testimonials
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PSD Group global network
London/Hong Kong/Shanghai/
Manchester/Frankfurt/Munich/
Haywards Heath
Visit our website
www.psdgroup.com
Gail Danvers
62 Queen Street
London
EC4R 1EB
Telephone
020 7970 9700
Email
Gail.danvers
@psdgroup.com

PSD Operational Risk Event - June 2016

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