In the wake of the 2008 credit crunch and in the face of a new set of regulatory demands, from Basel 3, Solvency 2, Dodd-Frank, and potentially catastrophic economic conditions in the US and Eurozone, effective risk management continues to be at the top of many board, executive and regulator’s agendas.
In these challenging conditions boards and executives need to maintain a tight focus on their costs while ensuring they have invested correctly in their risk management function and capabilities to meet regulatory demands.
Three key areas where the costs related to risk management are very apparent are operational losses, regulatory fees and regulatory capital. An additional challenge is to engage with the board and executive teams in the delivery of the risk management strategy using business language and tools.
In the current environment the CRO and their risk team have rarely been under so much pressure to deliver an effective risk management approach which delivers regulatory and business benefits.
One of the tools that can be used by the CRO and their risk management team to overcome the challenges outlined above is the Strategy Map, and specifically a Strategy Map for Risk Management effectiveness.
Based on the original Kaplan and Norton Strategy Map concept, the Strategy Map for Risk Management effectiveness is the ideal tool to frame discussions with the Board and Executive about the risk strategy. It also enables the objectives of risk strategy to be clearly defined and communicated. In particular, it enables the linkage between the risk management framework and process and business outcomes to be clarified and communicated.
Example of an Strategy Map for Operational Risk effectiveness
As well as providing a tool for monitoring and managing the risk management process, the Strategy Map for Risk Management effectiveness enables the CRO to demonstrate how risk management delivers valuable business outcomes such as reductions in operational losses, reduction in regulatory capital or protection against regulatory fines.
Applying the Strategy Map concept to risk management effectiveness is also a powerful way of driving a culture change related to risk.
The Strategy Map for Risk Management effectiveness was one of the key tools deployed at one of the UK’s leading financial services organisations to support and enable their risk-led transformation.
Facing a FSA RMP and a demanding agenda from a new CEO who sees risk management as a source of competitive advantage, the Strategy Map was used at the start of the risk management initiative to capture risk objectives and clarify stakeholder expectations.
During the project phase, the risk initiatives progress was continuously monitored and managed using a suite of indicators, providing an easy way to report to and engage with both the CEO and the regulator. Additionally, it was used to secure and maintain buy-in and support for the initiative. This was achieved by close tracking of business benefits and clear communication of those benefits, including a 94% reduction in the value of errors and a 63% reduction in the volume of errors.
Post implementation, the Strategy Map for Risk Management effectiveness was updated to reflect the BAU nature of the risk management process and then used as a reporting and management tool for the risk team.
MANIGENT STRATEGY MAP SERVICES
Strategy Map Bootcamp
Manigent’s 5 day Strategy Map Bootcamp will provide your organisation with the knowledge of how to design a robust Strategy Map and use it effectively for decision-making. It will also provide as its primary deliverable, a customised Strategy Map for Risk Management effectiveness enabling the CRO to monitor and manage the effectiveness and benefits of the risk management framework and process.
The Strategy Map Bootcamp is limited to the development of a Strategy Map for a single business unit.
Strategy Map design and implementation
Manigent’s Strategy Map design and implementation services provide your organisation with a tailored Strategy Map and supporting scorecard dashboard approach to the execution of business or risk strategy, depending on the requirements and outcomes of an initial discovery exercise.