operational risk management & strategic planning
TRANSCRIPT
Eneni Oduwole Group Head, Operational Risk Mgt.Dangote Group of Industries Limited
Outline
Introduction Strategic Planning Operational Risk Management Case Study OpRisk Drivers OpRisk Communication Improvement Strategy & Risk Interplay Prioritizing Risks RM & Value Creation RM & Strategic Planning Failure to Incorporate RM
Introduction
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Overview – Strategic Planning
Strategic planning requires clarifying the overall purpose and desired results of an organization, and how those results will be achieved
It is a disciplined effort to produce fundamental decisions and actions that shape and guide what an organization is, what it does, and why it does it, with a focus on the future
Elements Of Strategic Planning
Strategy Task Force
Vision and Mission Statements
Values
Goals and Objectives
Tasks Required
Implementation Strategy
Monitoring of the Strategic Plan
Operational risk, broadly speaking, is the risk of loss resulting from any malfunction in an organization
Such events include direct and indirect actions that may lead to increased errors, system failures, acts of nature, non-adherence with internal policies land regulatory stipulations
Operational Risk is the responsibility of all staff in an organization – junior, middle and senior staff
Involves interfacing with all business units with all business areas in the organization
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Overview – Operational Risk Management
What Is Operational Risk?
‘the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events’…Basel Definition
‘the risk of loss resulting from inadequate or failed internal processes, systems or human factors, or from external events. It includes the reputation and franchise risk associated with business practices or market conduct in which the Company is involved’…Citigroup Definition
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Classification Of OpRisk
Operational risk can be classified as follows:
─The nature of the loss: internally inflicted or externally inflicted
─The impact of the loss: direct losses or indirect losses
─The degree of expectancy: expected or unexpected
─Risk type, event type, and loss type
─The magnitude (or severity) of loss and frequency of loss
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OpRisk Components & Processes
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Case Study
Its 2008, CS Computer Ltd is about to review its strategic plan; a few months ago, it concluded its Risk & Control Self Assessment
Is there any need to refer to the output of its Risk Assessment?
What should be the drivers of its strategic planning?
What areas of its business require focus to achieve its growth plan and desired first mover advantage with new business opportunities?
Contents Of A Risk Register
Risk description
Risk owner
Risk Category
Cause of the Risk
Impact of the Risk
Probability / Frequency of occurrence
Risk Rating
Contingency or Action plan
Cost of Mitigation
Deadline for implementation
Current status
Planning For Superior Service Delivery
Develop Customer Service Policy Build customer loyalty Create a positive environment Establish an image of quality & professionalism Ensure prompt & effective customer complaints mgt Ensure management awareness of key criticisms Going the extra mile; beat competition Develop customized services Maintain customer feedback vehicle Train all staff on service delivery and products
Operational Risk Management Enablers
Develop Customer Service PolicyRisk Governance
Build customer loyaltyTrack business volumes and demographics of customers (reward
systems, promotions, special events) using Key Risk Indicators (KRIs)
Create a positive environment Risk Assessments
Establish an image of quality & professionalismTrack customer, agencies and regulators’ ratings with KRIs
Prompt and effective customer complaints management Track no. of customer complaints logged, treated and outstanding with
KRIs
Operational Risk Management Enablers (Cont’d) Management awareness of key criticisms
Risk Reporting
Going the extra mile; beat competition Peer group analysis by tracking relevant KRIs / Risk Reporting
Develop customized services Review of customer behaviour / Trend Analysis from RCSA and KRIs
Maintain customer feedback vehicle Track number of feedback, areas of business commended and areas not
mentioned at all (KRI, RCSA, Loss data collation)
Training on service delivery and products Track number of staff trained on service delivery, product offering &
number of complaints against staff attitude and product knowledge (KRI)
• Risk Register / Log• Identification of prevalent risks• Prioritized list of risks • Impacts identified
• Residual risks • Risk Appetite & Tolerance Levels
• Risk Register / Log• Identification of prevalent risks• Prioritized list of risks • Impacts identified
• Residual risks • Risk Appetite & Tolerance Levels
OpRisk Management – Strategic Planning
Desired business model, organizational structures and business strategies
Desired business model, organizational structures and business strategies
OpRisk Deliverables
The Economist
OpRisk Delivers Risk Management
Proper Operational Risk Management ensures Effective Holistic Risk Management as it minimizes overall risk exposures in the
organization
Prioritizing Risks In Your Organization
Risk prioritization must be based on the following:
The Risk Appetite of the organizationThe Business Model of the organizationRegulatory RequirementsBusiness objectives in the short, medium and long termsRisk – Reward AnalysisResponse style of the organizationMaturity of the Risk-Aware Culture
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Improvements In Risk Communication
The Economist
Strategy & Risk Management Interplay
Strategy
RM Objectives Assure Value-Creation Enhance Value
Value 1 Create new opportunities Invest in new business activities that promise gainful returns; expected to exceed capital cost
Create new opportunities Opportunity/threat identification / mitigation in new activities, price deals to compensate for such risks
Value 2 Improve performance Increase returns on existing business with better tech, processes, policies, knowledge etc.
Improve performance Measure loss exposure on cash flows. Risk/Reward, aggregated capital, scenario analyses, opportunity costs
Value 3 Harvest existing value Evaluate, exit non-profitable business
Harvest existing value Market analysis, risk mapping, risk adjusted performance measurement
Value 4 Align risk-taking with risk appetite Assurance that company is not gambling its future; avoid risk averse behaviour or excessive competitiveness
Align risk-taking with risk appetite Discipline, focus & control, only take risks equipped to handle, capital adequacy
Risk Management And Value Creation
Evaluate risk profiles for strategic plans for enhanced decision-making in developing a more realistic and achievable robust plan
Ensure that the policies, procedures, measures and monitoring are established and continuously improved
Provide periodic updates / reports to the Board and Management on identified risks, milestone achievements, and residuals risks
Operational Risk Management & Strategic Planning
Informal or reactive evaluation leading to either conservative or exaggerated growth scenarios in developing strategic plans
Subjective reasoning feeding the strategic planning process
Little or no risk adjustment mechanism
Inability to maximize potential for creating sustainable competitive advantage
Poor OpRisk Management Leads To…
TO CREATE VALUE ALWAYS CONSIDER
OPRISK MGT STRATEGY
“For firms to succeed in this increasingly global and competitive marketplace,
risk management must become a state of mind.
A systematic and proactive enterprise-wide approach to managing risks is essential to
making risk management an integral part of the company’s DNA”
ANURAG SAKSENA
– Chief Enterprise Risk Officer, Freddie Mac
CONCLUSION
Operational Risk Management is the Centre-piece of Risk Management and an
Organization’s Strategy…Thank [email protected]
Tel: 234-8033045896