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An agile approach to managing operational risk

Gareth Evans
Gareth Evans
Managing Director, Enterprise Risk Management
Managing operational risk Photography: Amir Cohen
Photography: Amir Cohen

In a global marketplace defined by disruption, the ability to respond to multiple sources of operational risk data will set successful organizations apart. How does platform technology enable this?

The risk/reward ratio within any organization is a key computation, but while measuring reward is often fairly straightforward, quantifying associated risk can be a multi-faceted challenge.

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In most organizations there are multiple ways of measuring risk.

This may be because the relevant risks differ greatly in nature, and therefore need to be measured differently, but this is not always the case.

There are many instances where there could – and should – be common ways to measure risk, but inconsistent discipline or incorrect frameworks may frustrate attempts to do so.

Further challenges encountered by risk professionals include varying data quality and the sheer volume of risk data available.

One size doesn’t fit all

The last decade has seen many attempts to automate risk processes and aggregate the outputs, but previous-generation technology lacks adaptability: it is unable to take account of the different nuances surrounding how we think about risk.

The result? Technology-led programs that forced Risk professionals into unsatisfactory compromises as to how they measured and monitored risk.

In the real world, of course, different divisions within an organization face different risks — perhaps IT, financial or credit risk — and the one-size-fits-all approach simply doesn’t work.

So in many organizations, we saw different risk and compliance functions backtrack from these programs, as they continued to embrace different ways of measuring their risks and different technologies to support their risk processes.

Hence thematic aggregation remained a manual task meaning critical interrelationships may get overlooked and, more generally, there was no way to compare and contrast risk by division or function.

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Benefits of platform technology

The platform approach embodies an acceptance of these challenges.

It is highly adaptable, working on the premise of allowing effective technologies within individual departments to remain in place, supplementing these with further functionality inherent in the platform itself and — crucially — introducing the ability to aggregate risks to enable meaningful comparison.

The platform approach further allows external data to be ingested alongside internal risk data, effectively empowering organizations to make better use of all available risk information in the broader eco-system.

Lastly, a fundamental benefit of a platform is the ability to leverage artificial intelligence (AI), allowing RegTechs to apply AI to different risk thematics, such as KYC and AML where it is particularly effective, and then aggregate with other areas where AI is less beneficial, in effect creating a best-of-both-worlds scenario.

Moving forward

When considering platform technology, it is important for organizations to take the first step of compiling a clear, meaningful suite of risks that they wish to aggregate.

In an industry where many people have felt let down by technology over the last few years, it is also imperative to keep an open mind and appreciate that there is no need to discard existing technologies that work.

What’s on offer is a solution that bridges the gap between specialist risk technologies and the need to aggregate risks across the organization.

Finally, when introducing the platform approach, risk professionals need to be involved in the design and configuration of the solution, so that all aspects can be specifically tailored around their day-to-day needs.

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