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A New Business Start Up In The Financial Services Sector Required The Establishment Of A Rigorous Operational Risk Environment.

SITUATION

A new business start up in the financial services sector required the establishment of a rigorous operational risk environment. The new line of business represented significant diversification into a new sector with new products. The new business would include development of market orientated value propositions, new alliances with distribution partners, up to twenty-one outsourced 3rd party service partners to support the operational model, green field process architecture and the appointment of new management and operational teams.

The above was anticipated to take 5 months from start to launch, and required a robust operational risk environment at “go live”.


CHALLENGE

The demanding timeline and the absence of an existing management team required a robust solution that could be transferred to the Business As Usual team when they arrived. This meant the solution needed to be simple, pragmatic, easy to communicate and allow minimal effort to sustain. It also meant that the risk management outputs needed to be integrated seamlessly into the management plans at “go live”, to ensure minimal duplication and consistent focus.

In order to prevent continuous rework arising from the design iterations, a framework was required that could be consistently applied to the business architecture and remained agnostic to detailed design changes. The diversification strategy also brought significant board oversight, requiring concise, yet informed, reporting and monitoring at the highest level; whilst maintaining a framework that could be applied down to operational management level.

APPROACH

Vsolution adopted a Value Chain based approach that aligned the operational risk framework to the business architecture. Whilst process and systems specifications changed continuously, the over arching value chain remained fairly constant. The Value Chain also informed the organizational structure, which provided clear points of accountability for each value chain step. This allowed accountability for the management action plan to be assigned at each level within the organization.

Importantly, the CEO could readily identify what needed to be done and by whom. The Vsolution approach also adopted a focus on critical success factors at each process step. The focus on success was an approach that was readily accepted by the project team and initial line management. By rigorously addressing the success factors at each step in the value chain, at the different process levels, the associated management action plans could be prepared and perceived risks mitigated. This included identifying the success criteria along the typical risk dimensions of people, process, systems and external events, with the additional influences pertaining to reputation and strategy being recognised.


These success criteria, with management action plans aligned to process steps, readily informed the key risk indicators and performance measures. The approach allowed the seamless integration of risk and management measures, at all levels within the organization.

Handover to the new line management was made simpler with the provision of success based action plans, together with the identified performance measures to form the basis of what they needed to do to achieve the strategic objectives of the new business. The translation to performance scorecards and individual key performance indicators at an operational management level was a logical next step with a relatively painless negotiation process. The above mentioned integration ensured focus on the critical actions that would ensure business success and consistent high quality service delivery whilst effectively managing the consequences of disruptive events.

Effective Board level reporting was maintained by taking the highest level value chain as a framework, and assessing the residual risk profiles and control effectiveness in each step. This approach also informed an executive level management action plan, which supported the strategic objectives of the organization. Alternate views could also be readily prepared, with focus on the architectural components such as people or systems, or the value chain steps such as fulfillment or origination. This multi-dimensional view, which can be applied at different levels in the organization, strongly supported the matrix management structure of the organization and aided the identification of common performance themes within specific business areas.


BUSINESS OUTCOME

The success based Value Chain approach to operational risk management delivered a strong operational risk control environment and a strong operational management framework with clear goals and performance measures. Specifically the approach:

– Provides a clear and pro-active performance action plan (focusing on offensive measures) to deliver the desired commercial outcomes, and ensure clear accountability, across the execution of your customer value proposition and key value chain components.
– Improves operational management and ensures a common understanding of business needs along the value chain whilst removing negative “silo” performance behaviours (enhancing cross-functional relationships).
– Enhances the performance culture in the business and aligns operational performance actions to the achievement of strategic imperatives.
– Provides a positive approach to risk management increasing enthusiasm, motivation and energy participant feedback has been very positive.
– Supports better integration of risk management plans within the strategic & functional management plans resulting in less duplication and more focus.
– Generates a significantly improved understanding of the business by participants, with increased functional integration along the value chain, improving management integration.

Above all, the approach increases business success by focusing on the operational levers that ensure delivery of consistently high service levels.

INSIGHTS

The insights derived from the application of this success based Value Chain approach included:

– The positive engagement by operational management, with previously negative perceptions of a “grudge” support function, around mitigating or reducing risks attached to success and using the risk framework to enhance performance within their value chain components.
– A more business centric view being defined by risk management resources to now engage with operational management on the business issues affecting performance rather than the previously low value added “tick box” compliance function.
– A collective view of risk management as a performance enhancer or enabler rather than a process leading to restrictions on capital availability and negating opportunity realization.