Bringing Data Analytics to Operational Bank Risk Management

Banks monitor and track market and financial risks with amazing efficiency but are often unable to achieve the same level of excellence when it comes to operational risks. This variation in performance is due to the very different nature of operational risks when compared to financial risks. However, modern technology provides banks with the ability to manage operational risks in a manner similar to financial risks which can remove the performance parity between the bank’s ability to manage both types of risks.

What Makes Operational Risks So Different from Other Risks

The biggest difference between operational risks and financial risks is that while the data for financial risk analysis is easily available, it often does not exist at all for operational risks and must be generated by the bank by monitoring operational processes. Financial risks are complex, and it can be argued that they are more difficult to analyze but the data that needs to be analyzed is very easily available. Most of the data is available either directly through government agencies and regulatory bodies, finance publications, the internet, and many other sources. Most risk managers create risk analysis spreadsheets and financial models and then enter the latest data into the same spreadsheet or model.

Banks do not have any similar sources for operational risks, the most obvious of them being that operational risks relate to operational processes within the bank and no external source can be expected to provide internal data.

If management wanted data on the average time it takes to complete a risk mitigation activity it would have to ask every employee to manually note when they started to work on the task and when they ended it. This is not a sustainable practice – employees cannot be asked to keep manual records of when they start each activity when they are often engaged in multiple activities throughout the day. The much bigger problem is that self-reported data can be very unreliable. Sometimes employees may forget when exactly they started or ended a task and would just write down what ‘seems’ right.

Generating Operational Risk Data

The first step to bringing sophisticated data tracking and analysis to operational risk tracking is to generate the data that can be tracked and analyzed by the risk experts. Risk management platforms with incident management capabilities are the perfect solution for such tasks. These risk management platforms provide not just a central repository for all risk data, but also a single platform where all risk related tasks and activities are monitored. This critical component of modern risk management solutions is the secret behind the advanced risk insights and predictions which these solutions can provide to an organization.

Access to operational risk data can be major game changer for banks because it enables new risk tracking and monitoring capabilities. Now if the board wants to track risk management performance, they can simply look at the performance metrics present within the risk management platform. The executive dashboards provided with risk management platforms provide a quick look at some of the most important risk metrics, operational metrics, and updates about risk activities. The board no longer needs to wait for monthly performance reports – it can instead see the performance being reported in real-time.

Enhanced Risk Analytics and Predictions

The data provided by risk management platforms brings parity between the data and analytical capabilities available to financial risk managers and operational risk managers. The risk management department within the bank will be able to predict problematic trends and detect opportunities within the organization’s data.

Risk management platforms can take in data from historical performance records, compare it to external market metrics, and predict problems and risks the bank may face in the next quarter. Having a reasonable amount of information about how the market will move in the coming few months has always been a requirement when financial and market risks are being managed. The same proactive approach can be applied to operational risks as well when there is a unified risk management platform in place within a bank.

Banks that want better analytics about their own performance and a stronger risk management framework should thus look for technology solutions that can be implemented. If your bank is looking for a smarter way to manage operational risks then get in touch with our risk experts for a demonstration of what our solution, Predict360, can do for your bank.