The Power of Data in Risk Management

Banks are incredibly efficient at monitoring and tracking business and financial risks, but they struggle to match the degree of quality when it comes to operational risks. This discrepancy in performance is due to the fundamental differences between operational and financial risks. Modern technology, on the other hand, allows banks to handle operational risks in a similar way to financial risks, potentially removing the performance disparity between the two forms of risks. 

The Importance of Managing Operational Risks 

The most significant distinction between operational and financial risks is that, while data for financial risk analysis is readily available, data for operational risk analysis is often unavailable and must be produced by the bank by operational process monitoring. Financial threats are complex, and while it may be argued that they are more difficult to assess, the data needed to do so is readily available. Most risk managers develop risk analysis spreadsheets and financial models, then update them with the most up-to-date information. 

Banks lack comparable sources for operational risks for a variety of reasons, the most evident of which is that operational risks are related to internal banking processes, and no external source can be expected to provide internal data. 

If management wanted to know how long it takes to complete a risk reduction operation on average, they would have to ask each employee to manually record when they began and finished the job. Employees cannot be expected to maintain manual records of when they begin and task when they are often involved in several activities during the day. Self-reported data can be very inaccurate, which is a much bigger issue. Employees may forget when they began or finished a task and simply write down what “seems” right. 

Collecting Operational Risk Data 

The first step in introducing sophisticated data monitoring and analysis to operational risk tracking is to produce data that the risk experts can monitor and analyze. For such functions, risk management software with incident management capabilities are ideal. These risk management systems serve as a centralized forum for all risk-related tasks and activities, as well as a central repository for all risk data. The secret behind the sophisticated risk insights and forecasts that modern risk management tools can bring to an enterprise is this crucial component. 

Since it allows new risk tracking and reporting capabilities, access to operational risk data can be a game changer for banks. If the board needs to track risk management efficiency, they can now do so by looking at the risk management platform’s performance indicators. Executive dashboards that come with risk management tools give you a fast view of some of the most critical risk indicators, operational metrics, and risk activity reports. The board no longer has to wait for monthly performance reports; now, it will see the performance in real time. 

Enhancing Risk Insights  

Risk management platforms have data and analytical tools that are comparable to those available to financial and organizational risk managers. Within the bank’s data, the risk management department will be able to anticipate problematic patterns and identify opportunities. 

Risk assessment platforms can pull data from past performance reports, equate it to external business indicators, and forecast potential challenges and threats for the coming quarter. When it comes to managing financial and business uncertainties, having a fair amount of knowledge on how the market will move in the coming months has always been a prerequisite. If a bank has a single risk management platform in place, the same approach can be extended to operational risks. 

Many modern risk and compliance platforms ensure that as many insights are generated as possible. They take in data from multiple sources to understand market movements. Internal data is combined with external metrics for enhanced risk predictions and deep risk insights. The cost of risk technology is decreasing very quickly, which has made risk technology an attractive prospect for small and mid-sized enterprises across the country. 

Businesses should make sure that they understand their own risk needs before they look for a solution to implement. Once all the requirements of the organization have been noted down, the business simply needs to look for risk management platforms that offer the required functionality. There are many types of risk management platforms available and many of them are designed for specific industries. There is no lack of choice for businesses that want to utilize technology to improve the way their organization manages, mitigates, and monitors risks throughout the enterprise. Cloud based solutions are usually the least costly among the risk management solutions and are an excellent choice for small to mid-sized businesses.