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Operational Risk Management During COVID-19: 3 Things Most Successful Risk Teams Do Right

Elena Pykhova, PIOR

Elena Pykhova, PIOR

Director and Founder, The OpRisk Company

Promptly re-prioritizing activities, mobilizing resources to produce a clear view of increased risks and weakened controls and applying a structured approach to draw out the most opportunities from the crisis are instrumental for Operational Risk management during the pandemic.

Elena Pykhova, PIOR

During the pandemic, organizations across the globe have to deal with immense operational challenges that are at the core of Operational risk management – People, Systems, Processes, and External environment. Existing frameworks are under real-life stress as a result of the crisis. This is the time for risk professionals to demonstrate to the Boards and the Executive teams the true value of Operational risk management.

What are the three things that differentiate the most successful risk teams – and their firms – in these difficult times? The Best Practice Operational Risk Forum, comprised of experts from a variety of multi-national firms, conducted a poll to examine this topic.

  1. Quick change in focus

An old time favorite, ‘Who Moved My Cheese?’ by Dr Spencer Johnson, a must-read for every risk practitioner, brilliantly relays the value of speedy acceptance and adaptation to a change. While some organizations carried on with exactly the same tasks as in pre-COVID-19, 70% of Operational risk teams have demonstrated agility and a quick shift of attention to the areas of material importance. They have been able to pause and reflect on the objectives, then put aside non-urgent projects and programs and focus on key risks posed by the pandemic.

Undoubtedly, one key Operational risk is People risk, concentrating on the physical and mental health and wellbeing of every company’s employee.  Risk practitioners have been instrumental in working with HR teams to recognize People risk as a top-line item as well as:

  • evaluate its level to understand whether it is increasing or decreasing
  • monitor its behavior via adequate metrics and Key Risk Indicators
  • ensure it is mitigated with meaningful actions.

The pandemic is taking its toll on well-being; research conducted by the Society for Human Resource Management found that between 22 and 35 percent of US employees experience symptoms of depression. The way in which companies behave, take care, and look after their staff will not only impact employees’ current welfare but will also have a profound bearing on their longer-term emotional engagement with the organization and willingness to remain loyal to the firm.

  1. A review of weakened controls and increased risks.

Continuing on the topic of top risk analysis, winning Operational Risk teams are working closely with business and support functions to assess other risks that may have increased as a result of Covid-19 and to highlight areas of weakened controls.

Working from home may be the catalyst of a decline in controls. Employees need to be encouraged to flag instances where processes have changed and controls were discontinued or operated differently as a result. As an example, Information security is a common risk area where day-to-day practices may have deteriorated, including:

  • Records management, printing and disposal of information at home. While offices are fully equipped with shredders, how are employees dealing with paper?
  • Use of internet and email. Research conducted by Barracuda highlighted that 50% of respondents allowed employees to use personal email addresses and personal devices to conduct company work.
  • Voice recording and call forwarding to an unrecorded home or mobile number, resulting in inability to retrieve vital evidence in the future.
Is there a central view of weakended controls? Pie chart
Source: Best Practice Operational Risk Forum

A consolidated view of increased risks weakened controls and materialized incidents presented only by 40% of respondents to the Executive teams, the Board and sometimes the regulators, provide much needed transparency and allow the organization to be one step ahead of the crisis, taking the right decisions at the right time.

3.  A structured approach to considering the positives. 

 

Is Operational Risk Considered Opportunities? Pie Chart
Source: Best Practice Operational Risk Forum

‘All of us might wish at times that we lived in a more tranquil world, but we don’t. And if our times are difficult and perplexing, so are they challenging and filled with opportunity’, a quote attributed to Robert Kennedy which couldn’t be more relevant to this current moment. Risk department is sometimes perceived as a gloomy critic that only focuses on the negatives – threat analysis; emerging risks; incidents and losses. To excel in risk profession, it is equally important to emphasize the opportunities, however less than half of respondents admitted to having a structured approach to identifying and evaluating the upside of risk.

Successful organizations excel at providing a balanced view, recognizing and presenting both risks and opportunities side by side. For Covid-19, opportunities may comprise:

  • Enhanced operational resilience and Business Continuity solutions. This includes potential savings due to reduction in use – or even cancellation of alternative disaster recovery site(s) if the majority of staff can work effectively from home.
  • Remote working – the success of WFH has won over even the hardest of skeptics, and will result not only in the increase of flexible working but also in saving costs on premises.
  • Supply chain diversity; the pandemic is prompting many firms to thoroughly review their suppliers and providers of third-party services. The benefits of this review are potential changes which strengthen the resilience of the organization reducing dependencies on a single point of failure.

In conclusion, lessons learned from Covid-19 highlight the following three activities that position winning Operational risk teams and their firms for short- and long-term success:

  1. Pausing to take stock of the situation and promptly shifting focus to what is most important;
  2. Working in close collaboration with business and support functions to have a full understanding of the areas of increased risk and weakened controls;
  3. Developing a structured approach to draw out the most opportunities from the crisis.
Best Practice Operational Risk Survey

The Best Practice Operational Risk Forum, a London-based forum comprised of over 40 major national and international financial institutions headquartered on four different continents, conducted an Operational Risk Management Survey. The graphs in this article represent results from the survey.

Guest Contributor:  Elena Pykhova is a thought leader, influencer, and founder of a think tank, Best Practice Operational Risk Forum. Executive trainer with over one hundred courses delivered at the world-leading venues including London Stock Exchange Academy, Cambridge, and Oxford Universities. Passionate about Operational Risk, founded The OpRisk consultancy after 20 years of experience in senior roles at Fortune 500 companies across 3 continents. Engages, leads and sets the Operational Risk agenda. Chair of Operational Risk Panel, Association of Foreign Banks, former Director for Education, Institute of Operational Risk.

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