Risk Visualization: Enterprise Prevention...

When "Corporate Executives" start talking about how to reduce fraud and other critical Operational Risks across the institution, there is going to be plenty of debate.

Where do you focus your resources and investments in order to get the best ROI and economic value?

If you thought the pornographers were the leading ledge of innovation on the AI Internet, there is a new breed of international criminals and corporate attackers that have emerged at the top of the pyramid.

Financial services organizations are taking an enterprise view of global risk prevention to try and keep ahead of these increasingly clever and technology oriented crooks.

Having an enterprise view of holistic risk is the "Holy Grail" and some would say that focusing on the account and not more on the customer is the wrong approach.

What is clear about the online evolution of fraud activity is that social engineering is working in the exploitation game. Hardening all of the systems with two-factor authentication or even IP Geolocation is just part of a layered risk strategy.

Working from within the walls of your institution trying to figure out how to protect your assets and your customers is merely a myopic strategy.

The attackers are moving too fast and have access to the same tools in their labs where they utilize their own methods and processes for exploiting the vulnerabilities in your latest applications.

Now that you have spent millions on implementing that new AML or fraud detection system, are you sleeping any better at night?

"True strategic analysis of risk and the convergence of relevant data makes scenario development, proactive planning and open source intelligence an area that requires consistent attention."

Simulations and evaluation of possible physical and digital exploits that haven't even been detected yet could provide the proactive and preventive advantage you have been seeking.

What is your latest hypothesis?  Have you tested it effectively to determine the likelihood and impact of success? Training and practicing for the unknown and unthinkable puts you and your team in a more resilient mode to survive the next attack. Whether it's through the front door, the suppliers back door or through the copper wire into your customers home or business office, detection is critical.  

Anticipation and deterrence is imperative...

SPRINT: Confident Actions of Trust Decisions…

As our view remained certain in Arlington, Virginia in the summer 2020, the nation is now poised to embark on a new and historical SPRINT.

Senior Leaders across America, have much on their minds, before our nation embarks on its next Four-year challenge.

Now it is time to set into action, the “Operational Risk Strategies” that will now be required for these next vital phases of our change.

The question still remains on how much time will pass, in your particular organizational SPRINT. Will it be minutes, hours, days or even a month?

While there will be uncertain future events that will occur, your particular team of OPS Risk professionals shall be there, to effectively brief you on your choices ahead:

0. - Assemble and prepare your team.

Who will you determine is the person to lead the team of 8 to 12? What skills and knowledge shall they possess as Risk Management prerequisites, in order to be of value to leadership, the team and the enterprise? Why will you utilize the tools you have chosen for your mission?

I. - Map your course.

How might you explain your mission and the professionals you have selected? What questions will your expert professionals ask to achieve the desired outcomes?

II. - Sketch the problem-set and research.

Who might your team enter into dialogue with to better understand the terrain. How will they actually determine the real issue that needs to be solved? The problem. Draw, interview, write, edit, interview, write, edit, Draw. Repeat.

III. - Decide.

How might your team make the decision that lies before you? What pictures will you show your Senior Leaders so they understand? Will the Storyboard exemplify the most true version of the problem-set?

IV. - Prototype.

Who might build the answers to your quest for a solution? What tools will they utilize for the fabrication of the prototype? How will they take it on a trial run?

V. - Test.

Where might you find the right environment and people to see how our designed solution performs? 

Who will be the end-users that actually utilize your prototype in the real world? In real-time to capture the solutions brilliance and to document its errors.

Trust Decision

This design process works wonders for Senior Leadership. It informs decision-makers with the context and knowledge they require, to make a confident Trust Decision…

Lessons Learned: The Impact of Executive Decisions...

In times of economic downturn the Operational Risks within your institution will begin to rise. Enron, Worldcom and HealthSouth are the few names people recognize as the major casualties of the last significant dip in our economy. When times get tough, people get desperate and try to keep the schemes and any red flags from being discovered.

So what are some of the areas that encompass Operational Risk:

• Internal Fraud - bribery, misappropriation of assets, tax evasion, intentional mismarking of positions
  
• External Fraud - theft of information, hacking damage, third-party theft and forgery
• Employment Practices and Workplace Safety - discrimination, workers compensation, employee health and safety
• Clients, Products, & Business Practice - market manipulation, antitrust, improper trade, product defects, fiduciary breaches, account churning
• Damage to Physical Assets - natural disasters, terrorism, vandalism
• Business Disruption & Systems Failures - utility disruptions, software failures, hardware failures
• Execution, Delivery, & Process Management - data entry errors, accounting errors, failed mandatory reporting, negligent loss of client assets

Cynthia Cooper has written a new book "Extraordinary Circumstances: The Journey of a Corporate Whistleblower" about her honorable quest to find the truth at Worldcom. Her quote in the March/April issue of Fraud Magazine says it all:

"Listen to your instinct. If people are acting out of character or appear to be working to head you in another direction, step back and ask yourself why. Continue to ask for support and dig until you're satisfied that you've gotten it right."

Beyond Cynthia's first person account to give the reader her emotional perspectives, Operational Risk Management professionals realize that their role and the job they have been trained to do is not always a "Pleasant" experience. This is why all of the training and education is so important and the rehearsals are absolutely imperative. Testing, evaluating and testing some more is the norm. Understanding what "Normal" looks like, takes time and persistence. Yet without it, our horizon for positive change could be in jeopardy.

With many of the "Lessons Learned" books now published from the last economic dip, who will be next to blow the whistle or expose the real risks that some companies are hiding from the Board of Directors and the shareholders. The class action lawyers are even gathering their evidence on the possibility of cashing in on predatory lending practices:

A federal appeals court is nearing a decision on a battle between Chevy Chase Bank and a Wisconsin couple that could for the first time enable homeowners across the country to band together in class-action lawsuits against mortgage firms and get their loans canceled.

The case is alarming Wall Street 's biggest banks, which could bear the hefty cost of reimbursing all mortgage interest, closing costs and broker fees to groups of homeowners who uncover even minor mistakes in their loan documents. After a federal judge in Milwaukee ruled last year that the Wisconsin couple had been deceived and other borrowers could join their suit, Chevy Chase Bank appealed to the circuit court in Chicago.

So what we have are markets that are volatile. Bankers who are raising the stakes for borrowers. And naive consumers who are facing higher prices across the board. The time for increased vigilance is in front of us all. From the Board Room to the Court Room it's time that we spend more time looking at the interdependencies and realize that risk is more than a prediction.

During these times, it's worth revisiting this post on Fear: The Elements of Prediction.

operational risk

Shareholder Value: Through Integrated Risk Management...

Supply chain risk management is getting more attention these days. As institutions get their own house in order with operational risk losses they are moving outside and auditing their suppliers. The complexity of the supply chain is increasing as organizations become leaner. A recent AMR Research Study results reveal that supplier failure and continuity of supply is the number one risk factor for 28% of firms.

The Enron scandal and the emergence of Sarbanes-Oxley compliance, the 9/11 terrorist attack, SARS and avian flu threats, the Asian tsunami and Hurricanes Katrina and Rita, and high-profile business failures have forced companies to evaluate how well-prepared their organizations are to handle catastrophe and unplanned events. For other firms, strategic and execution risks are front of mind, such as hitting a launch window for a short lifecycle product.

Additional survey results include:

• 33% of firms say they have dedicated budget line items for supply chain risk management activities.
• 54% of firms plan to increase their budgets for risk management over the next 12 months. Of those firms, the average spending increase will be 17% year over year.
• The top areas of application spending to support supply chain risk management are sales and operations planning, inventory optimization, business intelligence and supply chain analytics, and supply chain visibility and event management applications.

And while much of these manufacturing and distribution organizations are focused on the supply chain, in the financial sector, two international laws will affect how organizations retain, recover and report on data. BASEL II, which took effect Jan. 1, requires the worldwide banking community to uniformly capture data to allow operational risk factors to be identified and analyzed. This is just the beginning of additional financial sector scrutiny as the hedge funds exposure becomes a regulators new target zone.

Concern that booming lending to hedge funds may have led to a relaxation in credit standards has prompted US and European regulators to start the first joint investigation into whether banks and brokers are managing such risks appropriately.

The move is a sign that regulators are stepping up transatlantic co-ordination. It comes after a call by Angela Merkel, the German chancellor, for closer US-European Union co-ordination on financial regulation.

Officials from the Securities and Exchange Commission, the UK’s Financial Services Authority, the New York Federal Reserve and other European regulators met last month to discuss credit issues, according to David Cliffe, an FSA spokesman.

They want to know if the collateral required of hedge funds from their lenders is enough to cover losses, and whether margins are set at appropriate levels to help avoid systemic risk in the event of trading losses.

Operational Risks span the enterprise from the front office to the back office. From the servers room to the trading room. It's no wonder that Boards of Directors and corporate management have now realized that Enterprise Risk Management is the name of the game:

"The creation of shareholder value through the integrated management of risk."

New rules on the evidentiary discovery of clients' electronically stored information, international banking rules and more detailed interpretations of the Health Insurance Portability and Accounting Act will spur customers to put mechanisms in place to more quickly discover and retrieve archived data.

2007 is going to be another year of growth and opportunity. How you manage risk is going to be a deciding factor.

operational risk