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Spotlight On...
Risk Management
StratexSystems
“The true output of effective risk management is a successful organisation that delivers on its strategic objectives and satisfies the needs of key stakeholders - consistently, year on year.” Head of Operational Risk, StratexSystems client
I
n the wake of the credit crunch, many firms rushed to improve their operational risk management framework and technology under pressure from
their regulators. As the first green shoots of economic growth blossom, however, firms should ask themselves: does our risk technology support our business strategy?
For many firms, the primary driver of their operational risk agenda has been the need to meet the demands of regulators, which have become more intensive and intrusive in the wake of the credit crunch. Often the need to respond to ever increasing regulatory demands has meant that the crucial emphasis on enabling and supporting the execution of business strategy has been lacking. As the economic environment improves and as the regulatory emphasis on Conduct Risk increases, firms need to ensure that their operational risk management framework and technology is aligned to, and supportive of, the delivery of business objectives.
In our experience, many firms that have implemented traditional operational
risk management software tools now find that they have four main challenges:
1. Working with operational risk management tools designed for the risk team, not the business;
2. Difficulties in making changes to the system to reflect changes in the business environment;
3. Focusing on data capture; and
4. Establishing and sustaining a risk aware culture when the operational risk management software is not ‘fit for purpose’.
It is not uncommon for many firms to have invested in operational risk management
technology (often a
number of years ago) that was designed for the operational risk team to manage risk, rather than designed to enable the business to manage risk as part of its day-to-day job. This has the effect of limiting the business value of all risk management activities: the business become frustrated and disengaged in the risk management process because they have to deploy user-unfriendly software which adds no business value while the risk management function spends all
its time capturing and managing risk data without having time to generate meaningful analysis and insight for decision-making.
In addition to having the wrong
conceptual approach, a lot of operational risk management technology has poor, unfamiliar user interfaces with inflexible data structures or data structures which are incomplete or have in-built limitations. This means that in a more dynamic risk environment, these tools put a straightjacket on the business and encourage the growth of ad hoc spreadsheet or other systems to emerge. This significantly reduces the ability of firms to use risk management to change and generate insights for decision-making in a dynamic, changing regulatory environment where significant growth opportunities are emerging.
Another key issue that is often seen in operational risk management technology solutions is the lack of flexibility in reporting. A common complaint is “we enter a lot of data into the system but we cannot seem to get any information back out”. This focus
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