Introduction

Deconstructing the traditionally entrenched silos in risk management is an affair that has gained immense currency in recent months. Even the most benign risk exposures for each specific risk type may prove collective precursors to quite grave issues. To mitigate these concerns, it is imperative to collect, collate and convey all risk metrics that track potential hazards to senior management in a format that is easy to discern. This purpose is served by a risk dashboard which, essentially, is a brief compendium of all information that managers may need in order to guide the strategic course of business.

On the surface, this may appear an uncomplicated task. However, the deluge of variables available needs to be parsed for managerial pertinence and then presented in a way that depicts an enterprise wide overview of risks while maintaining brevity. Deciding which variables to utilize and how they are to be disseminated can be a significant challenge.

Key findings

• Current Practices – The six banks interviewed follow heterogeneous practices, ranging from Excel spreadsheets to rather lengthy written reports. Overall, there is greater reliance on numbers than on graphs and figures. Five banks present the dashboard every month while one does so on a quarterly basis.

• Indicators – As most respondents were operational risk managers, Basel Level 1 classifications emerged as a common standard. Colour codes feature prominently to indicate seriousness of risk.

• Maintaining Data Credibility – Standard procedures adopted at an enterprise level also hold for risk dashboards. However, there is no independent verification specifically of the data entering the dashboard.   

• Interactivity – The level of interactivity is limited to the ability to drill down into each business line, though even this remains work in progress. Banks, especially when using Excel, are capable of performing what-if analysis but do not do so at present.  

• Buy vs. Build Strategy – All banks view vendor packages as unnecessary. The flexibility, cost effectiveness and flat learning curve that characterize in-house packages find strong favour.

Conclusion

Still in their infancy, risk dashboards should gradually evolve to best practice standards featuring interactivity, real time delivery and even greater conservation of space. This process will certainly be expedited by soaring technical advances in integrated architectures that demolish communication barriers between different applications. If the practical benefits realized from the use of dashboards are any indication, the business case for such demanding investments may also be met with cordial enthusiasm.

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Tagged with: 2010, risk management, Risk Research Report