INVESTMENT FUNDS: Step 5 Report a single view of risk to your Management and Governance Teams

Fund Elements provides InFORM, an Investment Fund Operational Risk Management solution, that identifies high risk processes and makes them safe. Our objective is to help you eliminate operational errors.

Go to www.fundelements.io to find out more about InFORM's 5 Steps to make High-risk Processes safe and to sign up for a 14 Day Free Trial.

In my last blog, I talked about Step 4 of InFORM, the action plans required to make high risk processes safe and eliminate operational errors.

In this blog, I will focus on Step 5, how to report a single view of risk to your Management and Governance Teams.

When an operational error occurs, does early engagement with your Management and Governance Teams make the outcome better or worse?

A fund's Management and Governance teams are there to help.

Their experience allows them to see beyond an error.

They understand that errors will occur and they know that there is a level of risk in everything we do.

There is an appreciation that you have to maintain a balance between getting things done within the timescales allowed and the risk of making a mistake.

Reporting High Risk Processes

An Investment Fund's Governance and Management Teams will want to know that an effective risk management procedure has been implemented.

The Governance Team is mainly concerned about resource allocation and ensuring that priorities are acted on.

To achieve this you will need to demonstrate the following:

Operating Model. You have a framework in place that is meaningful to the Operations Teams.
Empowered Teams. There is a culture of risk identification, Operations Teams have been asked to identify risks and can easily record their concerns.
High-risk. That Operational Management and Risk Management review the assessment of the risks identified by the Operations Teams and confirm high-risks.
Action Plans. That when a high-risk process have been identified, that action will follow to reduce or eliminate the risk.
Progress. That in between periodic meetings progress is being made on completing agreed actions.

It is easy to demonstrate each of these points when you have implemented a solution like InFORM. It gets increasingly difficult if you have not.

It is important to point out that the Governance and Risk Management Teams will not want to know about every risk.

The Governance Team is mainly concerned about resource allocation and ensuring that priorities are acted on.

Reporting Operational Errors

When a material error occurs, does early engagement with your Management and Governance Teams make the outcome better or worse?

It's your choice, effective operational risk management or play the blame game.

The general view is to report first to avoid compounding the error. There are behavioral factors and barriers to achieving this objective, nobody wants to be the bearer of bad news.

It is easier to report errors when there is an established culture of open feedback through operational risk management.

Effective Operations Risk management builds trust and changes the type of questions that will be asked if a material error occurs.

Did we identify the process as high risk?
If so, what were we doing to reduce or eliminate the risk?
If not, why did we not see it as high risk?

This type of questioning creates a feed forward loop that reinforces operational risk management.

The upside is that with effective operational risk management, if you get the risk assessment right and focus on the actions required, then you have a good chance of putting in place a solution before its too late. There's no downside.

The alternative to effective risk management is a culture of concealment, time spent on how to position an error, consideration of the impact on the wider relationship and damage to your reputation.

It's your choice, effective operational risk management or play the blame game.

Next Blog

In the next blogs, I will focus on the link between High Risk Processes and Operational Errors.

I will high-light a number of areas where operational errors keep recurring, identify the characteristics that makes a process high-risk and distinguish between the different timescales for business and technology change required to make them safe.

For more information on InFORM's functionality, the 5 Steps to Make High Risk Processes Safe and the 3 Implementation Plans options go to www.fundelements.io/inform.