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

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Risk is not complianceThe 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• Environm

ent

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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Small is Beautiful in Risk Management

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


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

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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.


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 statementsQualitative

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

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KRI dashboard


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


Exposure limits, control requirements and KRIsExposure

To limit or accept

Key Controls Key risks indicators

To design and test

To monitor and react

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Environmental Stretch

Failure Causal

A typology of Key Risks Indicators

Source: Chapelle, OR&R, 2013

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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


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 behavioursRisk is about People,

Process, Systems and External Events-> focus on getting it right by design


Putting it all together: a simple ORM Process


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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.


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.


InertiaLarge 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: [email protected]

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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“I have worked with Gail at the PSD Group since 2006. During that time Gail has handled six search assignments and is an excellent recruiter well connected and with a strong reputation for working on senior and executive assignments. Gail has an excellent understanding of the fund management market and provides a flexible and consultative approach. I enjoy working with Gail and would have no hesitation in recommending her to other potential clients”

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PSD Operational Risk Event - June 2016

Business

Transcript of PSD Operational Risk Event - June 2016