PSD's Banking & Financial Services sector recently hosted a forum to explore risk management in smaller banking firms.
Dr Ariane Chapelle, Director of Chapelle Consulting, was the key note speaker, giving a thought provoking presentation.
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Why manage risk? – Why do cars have breaks?
• Achievement
Risk Management is an accelerator
• Safeguarding
Risk Management prevents disasters
Source: Institute of Risk Management
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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.
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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
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A. Chapelle, Risk.net & Operational Risk, May 2016
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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
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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
• ...
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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.
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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.
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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
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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.
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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
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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.
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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.
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PSD Group global network
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Visit our website
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