The Business Situation
As the credit crunch unfolded in 2008, the largest financial services outsourcer in the UK, with £45 billion of assets under management, faced a series of challenges. Firstly, a number of their clients faced losses in the market, with some withdrawing from the UK altogether, putting at risk a significant amount of fee income. The second challenge was the Financial Services Authority’s (FSA) ARROW visit which resulted in an extensive Risk Mitigation Programme (RMP) and increased and on-going supervision. Thirdly, there was the unacceptably high level of operational losses which were having an increasingly detrimental impact on profit.
In addition to these challenges, the business had a new CEO who had to quickly replace the business’s growth strategy with a survival strategy. They also had a new Head of Operational Risk whose remit to transform risk management was suddenly focused on implementing a major RMP whilst simultaneously attempting to reduce the operational losses and reduce the amount of economic capital provision.
Facing difficult circumstances, the CEO put his support behind a ‘risk-led transformation’ and appointed Manigent to provide the risk management expertise and resources to support the transformation.
When strategy meets culture, culture always wins – CEO, Manigent client
Manigent was engaged to support the Head of Operational Risk in the implementation of their risk-led transformation.
In this engagement, the Manigent team played a number of roles: Risk management experts providing guidance on the design of the risk management framework; Risk consultants working alongside the internal risk team to deliver the transformation; and Programme Management consultants providing the programme management expertise and resources to manage the various workstreams involved in this transformation.
Manigent kicked off the risk programme by undertaking a number of discovery workshops with key stakeholders. The workshops were key to developing a clear understanding of the current state of the risk management process and framework; developing a clear understanding of who the key stakeholders of the risk programme were and their motivations. They also enabled us to develop a clear ‘vision’ for the future of the risk management process and framework for the business.
In designing the risk management framework, Manigent proposed its Risk-Based Performance Management (RBPM) methodology as a starting point. The RBPM methodology is an integrated approach to strategy and risk management, meeting the competing demands from the various stakeholders of this programme. It met the demands of the CEO and Executive team who were looking for a framework that embedded risk management, and specifically risk appetite, into the heart of their strategy execution processes. It met the demands of the FSA who wanted to see the adoption of a ‘conceptual sound approach to operational risk management’. It also met the demands that the risk team was placing on itself. They wanted to go beyond a traditional ‘compliance-driven’ approach to risk management to implement an approach that supported front-line strategic and operational decision-making. It was imperative to make a clear link between the day-to-day activities of the business and the risks related to those activities.
During the implementation, as the requirements of the programme evolved, Manigent brought in risk consultants to supplement the internal risk management team. This added expertise in change management, risk training and general risk management, and enabled the project team to get through a major programme workload.
In addition to providing specialist risk management skills and expertise, Manigent provided the programme management skills and expertise to deliver this risk transformation over an 8 month period. The programme was delivered using an Agile based approach utilising sprints and scrum. This proved highly effective in developing momentum and a sense of urgency early in the project, meaning that quick wins were delivered and the support of the business and the executive team followed. Like all change programmes of this nature there were a number of challenges which had to be overcome. The early momentum and support was maintained throughout the project, enabling the challenges to be met and the programme to be successfully delivered.
From the outset, this transformational programme aimed to deliver a robust risk management framework and process that moved risk management from the central risk team to the frontline of the business, so that risk could be managed where it was taken.
Central to embedding risk management in the front-line was the process undertaken to embed risk appetite into the strategic and operational decision–making processes within the business. This enabled the project to meet one of the key demands of the executive team-deliver a risk framework that allows us to manage the business better.
We are very clear about our risk appetite and how decisions are made against risk appetite – therefore as a business our operational boundaries are clear. -Head of Operational Risk
As well as delivering significant culture benefits, there were also significant financial benefits. As a result of this action, our client has seen a 60% reduction in operational losses and a 50% reduction in the economic capital provision.
We have now reduced our regulatory capital by over 50%... our parent company is delighted.- Head of Operational Risk
Furthermore, there was significant improvement in our client’s relationship with the FSA. All of the RMP points were fully addressed during the risk transformation programme, and the FSA supervisor expressed his confidence in the risk framework with the comments “this approach to risk management puts you head and shoulders above your industry peers”.