Having trouble with your enterprise risk management strategy? Map it.
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In 2016, it was estimated that 67% of well-formulated strategies failed due to poor execution and 1 in 3 business leaders rate their firm as poor or very poor at the implementation of strategy. Like business strategy, the risk management strategy presents execution challenges for the CRO and Risk Management teams. Paraphrasing the original article that introduced the Strategy Map, in the presentation, Ascendore CEO outlines how the Strategy Map can be used as part of an overall strategy management system to improve the execution of the risk management strategy. This presentation is based on an Ascendore customers use of the Strategy Map for Operational Risk Management.
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Having trouble with your enterprise risk management strategy? Map it.
- 1. Having trouble with your enterprise risk management strategy? Map it.
- 2. Risk Management is mission critical to business success Post credit crunch, financial services firms are drowning under a tsunami of regulatory change, cost and complexity 2 Run the Bank costs £200bn 492%
- 3. Firms need a enterprise risk management strategy 3 Accenture Risk Study, 2017 Lack of enterprise risk management strategy & poor integration of risk across firms is adding cost & complexity
- 4. The problem with strategy, any strategy is execution In 2016, it was estimated that 67% of well- formulated strategies failed due to poor execution. Only 68% of leaders believe their organisation is good at developing strategy, down from 80% in 2012. One in three leaders rates its organisation as being poor or very poor in its ability to implement. In 2016, the top three reasons for failure were; 1. Poor Communication 2. Lack of Leadership 3. Using the wrong measures. 67% 68% 1 in 3 Why? Do well does your firm execute its risk management strategy?
- 5. The ability to execute strategy adds significant value 5 Businesses with clearly defined and well-articulated strategies on average outperformed competitors by 332 per cent in sales, 304 per cent in profits and 883 per cent in total shareholder returns. Data from a ten year study by Harvard Business School.
- 6. Challenges related to the execution of risk management strategy
- 7. As the person accountable for risk management strategy, the CRO should think about 7 Communication How do you communicate your risk management strategy; ▪ To the board and executive? ▪ To your team? ▪ To the business? ▪ To other stakeholders, including regulators Leadership What type of leader you? What type of leadership are you providing for the risk management strategy? Measurement How are you measuring the execution of your risk management strategy? ▪ What type of indicators are you using? ▪ How are you reporting on these indicators and to who? ▪ How balanced is the indicator set? ▪ Leading vs Lagging ▪ Financial vs Non-Financial Highly Capable Individual Contributing Team Member Competent Manager Effective Leader Great Leader
- 8. Enterprise risk management should protect and add value business value, not simply tick regulatory boxes 8 The cost & complexity of operational risk & compliance is too high and there is a “disproportionate risk aversion creeping into decision-making” Chairman, HBSC, 2015
- 9. About the Strategy Map
- 10. The Strategy Map is a powerful tool for communicating, monitoring and managing strategy execution 10 “All men can see the tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.” – Sun Tz
- 11. The Strategy Map visualises how value is created, linking the intangible to the tangible 11 Financial To succeed financially, how should we appear to our shareholders? Customer To achieve our vision, how should we appear to our customers? Internal Processes To satisfy our shareholders and customers, what business processes must we excel at? People & Culture To achieve our vision, how will we sustain our ability to change and improve? Human, Organisational & Information Capital Improve Shareholder Value Productivity StrategyRevenue Growth Strategy Improve Cost Structure Increase Asset Utilization Enhance Customer Value Create Value from New Products & Services Customer Value Proposition Cost Leadership Customer Experience Product Leadership Brand Product / Service Attributes Relationship Image Service RelationsPrice Quality Time Function Operations Theme Customer Management Theme Innovation Theme Regulatory and Society Theme Strategic Competencies Strategic Technologies Climate for Action
- 12. The Strategy Map is a cause and effect diagram 12 Financial Customer Internal Process People & Culture Financial Perspective "If we succeed, how will we look to our stakeholders?” Customer Perspective “What do our customers expect from us?” Internal Perspective "To satisfy our customers, at which business processes must we excel?” People & Culture Perspective "To be successful, how must our organisation learn and improve?”
- 13. The Strategy Map is part of an integrated management system 13 Financial Customer Internal Process People & Culture Double the number of new products released to market Objectives Break the strategy into 12-16 objectives, which state what specifically must be achieved and what’s critical to success. Accountabilities Who is Accountable for achieving the objective? Who else is involved, and what roles do they play? KPIs How success in achieving the strategy will be measured and tracked. Initiatives What change must be implemented to achieve success? ▪ Responsible ▪ Accountable ▪ Consult ▪ Inform ▪ Rate of Product Release – Last Year vs This Year ▪ NPD Release Velocity ▪ Launch new online ideas portal ▪ Engage Market Research firm
- 14. The Strategy Map is part of an integrated management system 14 DEPARTMENTAL STRATEGY MAP ALIGNMENT MATRIXACCOUNTABILITIES MATRIX CORPORATE STRATEGY MAP SCORECARD RISK MAP APPETITE ALIGNMENT MATIX
- 15. Retail Banking Strategy Map 15 Financial Customer Internal Process People & Culture Grow Income in Key Market Segments Increase Shareholder Value Lowest cost of funds & cost to serve Increase average share of wallet Good value & innovative FS solutions Valued & Trusted FS provider Low cost, convenient service Build Market Awareness by Segment Drive Execution of the Sales Process Develop a 360 view of customers Cross-sell to existing customers Exploit Digital Channels to cover reduction in branch network Manage Information in line with GDPR requirements and as a strategic asset Re-skill team to sell & support a ‘total solution’ proposition Develop and embed a high performance culture Improve risk management framework & process Manage the Balance of Funding
- 16. Accountabilities Matrix 16 Objectives AddValuethrougheffective operationalriskmanagementExecutives A Addvaluethroughsuccessfully exploitinghigher-risk opportunities Reducelossesandcoststhrough successfullymanagingthreats Wemanage&developORM processesandcapabilitiesto enableustoexploithigher-risk opportunities. Wehaveacomprehensive approachtoORM. Wemanage&developORM processesandcapabilitiesto minimiseoplosses,costofcapital andinsurancecosts. Proactivelyunderstand& manageuncertainty Maintainaccuraterisk assessments Effectivelyapply1of4risk treatments EnsuretherightKRI’sare updatedontime Delivertherightriskinformation, attherighttime,intheright format Developa‘nosurprises’culture Developculturewhichembraces ORas‘partofeveryone'sjob Develop&supportanengaged, proactiveteamofriskchampions Provideriskchampionswiththe toolstodothejob A A C C C C C C C C C C C C R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R A A A R R R R R Financial Customer Internal Process People & Culture C C C C C C A A A A A A A A A R C R R R R R R R R R C R R R R R R R R R R CEO CFO CRO CIO COO CHRO CMO CTO
- 17. ▪ ▪ ▪ Initiative Alignment Matrix 17 Objectives Risk awareness program Build risk models & analytics for management decision making Build risk models & analytics for capital modelling & regulatory purposes Select and Implement a new ERM software solution Risk Appetite training program for Board & Executive teams Initiatives Proactivelyunderstand& manageuncertainty Maintainaccuraterisk assessments Effectivelyapply1of4risk treatments EnsuretherightKRI’sare updatedontime Delivertherightriskinformation, attherighttime,intheright format Developa‘nosurprises’culture Developculturewhichembraces ORas‘partofeveryone'sjob Develop&supportanengaged, proactiveteamofriskchampions Provideriskchampionswiththe toolstodothejob Internal Process People & Culture Low Moderate High Level of Alignment
- 18. Status Operational Risk Management Performance Scorecard 18 Add Value through effective operational risk management Add value through successfully exploiting higher-risk opportunities Reduce losses and costs through successfully managing threats Financial Perspective Objective Key Performance Indicators Indicator Type Frequency Value TrendRACI Risk Management Team cost – Actual vs Budget YTD Regulatory Fines & other direct costs - Actual vs Budget % Income from New, Innovation Products – Actual vs Plan 12 Month Pipeline of New Innovative Products – Actual vs Plan Ratio - Operational Loss Value to Total Income Average Value of Losses – This Month vs Last Month Number of Operational Losses – This Month vs Last Month Accountable Accountable Accountable Accountable Accountable Accountable Accountable Leading Lagging Lagging Leading Lagging Leading Lagging Monthly Monthly Monthly Monthly Monthly Monthly Quarterly 96% 90% 115% 150% 5% 102% 65%
- 19. Using the Strategy Map to map your risk management strategy
- 20. Risk Management Strategy Better Risk-Based Culture Better Risk-Based Decisions Better Risk-Based Action-taking Better Business Results Risk Management Strategy is a high-level plan which sets how the firm will identify, assess & manage risk to protect and create shareholder value. 20
- 21. 21 What does the Risk Management team need to do to enable the risk management strategy? How is progress in delivering the risk management strategy measured & reported? How will the firm approach risk management? Is the risk management strategy aligned to the business strategy? WHAT IS YOUR RISK MANAGEMENT STRATEGY?
- 22. Operational Risk Management Strategy Map 22 Financial For the RMF to be successful & sustainable, what will the financial benefits look like to our stakeholders? Stakeholder For the RMF to be successful & sustainable, what will our stakeholders say about Operational risk management at our company? ORM Processes For the RMF to be successful & sustainable, which operational risk process must we excel at? People & Culture For the RMF to be successful & sustainable, what are the capabilities we needs to develop? Organisational Capital Human Capital Information Capital Develop a ‘no surprises’ culture Develop culture which embraces OR as ‘part of everyone's job Develop & support an engaged, proactive team of risk champions Provide risk champions with the tools to do the job Proactively understand & manage uncertainty Maintain accurate risk assessments Effectively apply 1 of 4 risk treatments Ensure the right KRI’s are updated on time Deliver the right risk information, at the right time, in the right format We manage & develop ORM processes and capabilities to enable us to exploit higher-risk opportunities. We have a comprehensive approach to ORM. We manage & develop ORM processes and capabilities to minimise op losses, cost of capital and insurance costs. Add Value through effective operational risk management Add value through successfully exploiting higher-risk opportunities Reduce losses and costs through successfully managing threats Identification Assess & Evaluation Actions ReportingMonitoring
- 23. Highlight issues with strategy execution 23 Financial For the RMF to be successful & sustainable, what will the financial benefits look like to our stakeholders? Stakeholder For the RMF to be successful & sustainable, what will our stakeholders say about Operational risk management at our company? ORM Processes For the RMF to be successful & sustainable, which operational risk process must we excel at? People & Culture For the RMF to be successful & sustainable, what are the capabilities we needs to develop? Organisational Capital Human Capital Information Capital Develop a ‘no surprises’ culture Develop culture which embraces risk as ‘part of everyone's job Develop & support an engaged, proactive team of risk champions Provide risk champions with the tools to do the job Proactively understand & manage uncertainty Maintain accurate risk assessments Effectively apply 1 of 4 risk treatments Ensure the right KRI’s are updated on time Deliver the right risk information, at the right time, in the right format We manage & develop ORM processes and capabilities to enable us to exploit higher-risk opportunities. We have a comprehensive approach to ORM. We manage & develop ORM processes and capabilities to minimise op losses, cost of capital and insurance costs. Add Value through effective operational risk management Add value through successfully exploiting higher-risk opportunities Reduce losses and costs through successfully managing threats Identification Assess & Evaluation Actions ReportingMonitoring
- 24. Align your risk management strategy to the business strategy and manage its execution using these ‘tools’ 24 RISK MANAGEMENT STRATEGY MAP ALIGNMENT MATRIXACCOUNTABILITIES MATRIX CORPORATE STRATEGY MAP SCORECARD RISK MAP APPETITE ALIGNMENT MATIX
- 25. Value of using the Strategy Map to support the delivery of the risk management strategy
- 26. 26 RISK MANAGEMENT STRATEGY MAP ALIGNMENT MATRIX ACCOUNTABILITIES MATRIX CORPORATE STRATEGY MAP SCORECARD RISK MAP APPETITE ALIGNMENT MATIX Proven process & approach Rapid results (5-10 days) Expert knowledge Guaranteed results NEED HELP WITH YOUR RISK MANAGEMENT STRATEGY?
- 27. Appendix A
- 28. Indicator Quality Assessment 28 0 2 4 6 8 10 Financial Lagging Non-Financial Leading Target Actual
- 30. 5 Levels of Leadership 30 Harvard Business Review. From "Level 5 Leadership: The Triumph of Humility and Fierce Resolve" by Jim Collins, January 2001.
- 31. Having trouble with your enterprise risk management strategy? Map it.