Operational risk has eclipsed credit risk as national banks’ chief safety and soundness challenge, Comptroller of Currency Thomas Curry told the Exchequer Club in Washington, D.C., last week.
Operational risk – the risk of loss due to failures of people, processes, systems and external events – is “high and increasing,” Curry said. He cited flawed risk models, lack of adequate controls over third party vendors and anti-money laundering efficiencies as some examples of operational risk.
“[A]s banks and thrifts face greater resource constraints and higher compliance costs, they may feel greater pressure to economize on systems and processes in order to enhance their income and operating economies …,” Curry said. “All institutions … must resist the temptation to under-invest in the systems and controls they need to prevent greater risk and larger losses in the future.”
He emphasized the risk of operational failure is embedded in every activity and product – from a bank’s processing, accounting and information systems to the implementation of its credit risk management procedures.
“No issues look larger today than operational risk in all its dimensions, the manner in which all risks interact, and the importance of managing those risks in an integrated fashion across the entire enterprise,” Curry said. “These themes are a supervisory priority for us at the OCC today and they should similarly command the attention of the industry.”
reprinted from the Oklahoma Bankers Association Weekly Update, May 21, 2012
Given that you agree with the recent post on every business having the same four core values . . . let’s continue our discussion.
Here’s a diagram for visualization: Business Value Balance. Each operational value exists in a spectrum (generally from happiest to least happy). Depending on the current score for each value on their respective spectrum, business is probably good. Referring to the chart, you can see the business as the core, four-pointed star. When the staff is happy, the customers are happy, the business is generally likable and its making a profit the business is sustainable.
There’s another star, too: a red, eight-pointed star. The eight-pointed star is the zone of risk tolerance. If you chart the scores of the four requirements for sustainability within the level of tolerance, it’s holding steady. If the level of value isn’t meeting or exceeding the least tolerable level, then its a problem. Simple enough. When one or more of the scores exceeds the level of tolerance, the business will naturally look for ways to move back toward a balance.
HERE’s THE CATCH: How the business finds its way to pull one score back to center could happen at the cost of another value. And, if no one’s managing the balancing act, it will be at the cost of another value. They’re all interrelated so they will all be effected.
If you don’t have plans to deal with keeping the four basic core values in balance, business ends up looking chaotic. It is constantly in flux, always pulling and pushing at itself. Costing the happiness of staff, the happiness of clients, likability and profit. This diminishes sustainability and resilience.
Next blog: keeping the business values at the center of your continuity program.
What do you think? Do you agree? Disagree? Case studies?
In my experience coaching businesses for operational resilience I’ve found that all businesses are inherently the same. Just as they can internally organize themselves into three simple zones of selling, making and managing, they can also break down their operational values into four categories:
1. Happy staff – Employees who are generally satisfied enough
to stick around and get the job done to (at least) a minimal specification.
2. Happy Stakeholders – Clients/Customers/Shareholders/etc that get what they expect from their relationship with the business.
3. Profit – Not just production or income, making money on top of what the job costs.
4. Generally likable – Be it regulators or media groups, if the business is not “generally likable”, the business can ultimately be made very uncomfortable and even fail if it’s not generally likable. It’s comes down to sustainability and, if brought to an intolerable level it’s a serious risk. I’d love to hear your suggestions on better names for this category. For example, when several senior managers fraudulently and unethically used the business for their own gain at the high cost of your employees and shareholders, your business is probably generally unlikable. When an employee is using your business opportunities to get access to young children they are also abusing, your business is probably generally unlikable. You get the picture.
Next in this series: Values in Balance