Operational Risk now OCC’s top concern

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.”

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All Business Values are the Same

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.

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How Excellent Companies Avoid Dumb Things – 12 Principles

I just finished an excellent book on driving change in business: Neil Smith’s “How Excellent Companies Avoid Dumb Things”

Here’s the 12 principles that cut through the barriers:

1. The CEO must personally lead and support and change process carried out across the entire organization and a majority of senior management must also support it.
2. The entire organization must be engaged in the change process.
3. The project must be guided by “stars” who are willing to change the status quo.
4. There must be no up-front targets for the company as a whole or the individual departments within it.
5. Those who will implement the idea must own the idea.
6. It must be easy to put ideas into the change process but hard to remove them.
7. Consideration of ideas must be based on facts and analysis, not opinion.
8. Consensus must be built.
9. There must be a focus on increasing revenue, not just reducing expenses.
10. The change process must not disrupt normal business.
11. Implementation must be nothing less than 100 percent.
12. The change process must be about culture change, not just a completed project.

Smith is right, constructive change that you want to see in your business is going to begin at the top and must be measured and deliberate.  Don’t mistake success for luck.  It’s not going to come easy!

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