01 June 2007

Performance Management: Risk on the Front Line...

Delivering Value to the CEO is the mantra from Mick Leonard, the Chief Risk Officer at Commonwealth Bank of Australia. In his article in the June issue of the RMA Journal focused on Operational Risk, he talks about growing the business:

"My CEO expects operational risk management to help support and deliver the business plan and to build and preserve the right culture. So there will be nothing in my address about reducing risk; rather it's about how we can manage our businesses to optimize the risk/return outcome that our management, customers, and shareholders expect."

Mr. Leonard understands that Operational Risk and the management processes to make risk management an enabling and growth oriented mechanism requires a mind set shift. Understanding how to enable more risk taking and created innovation to achieve superior growth requires the ability to effectively incorporate risk management into daily work products.

When you create a new document, start a new e-mail or enter new data into the database in the course of your daily work you are playing the role of a risk manager. The degree to which you follow protocols, procedures and training involved with records management, information security and work place employment policies creates the foundation for how much risk you will take today. And it will impact your ability to be innovative, competitive and productive at the same time.

Turning risk management into performance management could begin on the front line of the deal makers with the compensation strategy and the behaviors you are seeking from your revenue generators. Whether it's direct or in-direct personnel, you have to understand how to use the right mix of compensation and incentives to drive a risk appetite that is appropriate for your organizaition.

Performance Management could be enabled or supressed by the amount of power you give your leadership. Do they have the ability to make a $1M decision or $10K decisions when it comes to investing budgeted capital into their business unit growth? Do they manage risk on a level where they are the most informed and the most knowledgeable about the business, or is the "Mother Ship" back at the home office dictating the way they spend or the way they invest?

PNC Bank has been converging functional business units as a way to impact their operational intelligence strategy. Do you have fraud management and Anti-Money Laundering (AML) programs that are operating without strategic coordination? Increasing the performance of operational risk sometimes requires the sharing of intelligence across boundaries and business units:

Ann Mele, PNC's Director of Financial Intelligence says "unification of corporate structures, operational processes and subject-matter-expertise presents the opportunity to combat fraud and AML issues more effectively and efficiently. We can now capture analyze, and disseminate information in a manner that proactively identifies threats before losses or major customer impact occurs."

The ability to know how to manage risk at the point of creating new information is the nexus of several disciplines and requires substantial training. Every minute that goes by with people not behaving correctly puts the enterprise at greater risk to lost performance opportunities.

A misprinted internal Bank of America fax inadvertently sparked a bomb scare and the evacuation of a bank branch in Ashland and about 15 local businesses for more than two hours in an Ashland shopping plaza Wednesday morning.

The fax - which showed images of a match lighting a bomb fuse and a timer - turned out to be a botched promotional flier, counting down the start of Bank of America’s "Small Business Commitment Week."

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