What do you do if your Risk Management metrics and indicators are not providing accurate insights?

The most crucial aspect of risk management is how, most simply, you communicate the risk impacts and mitigation required. Risk management reporting is done in various ways. It can be a Letter to management or a presentation of Metrics of key risk factors and your organization's rating on it. However, if your stakeholders are unable to understand your communication, then your Risk Management Metrics will be ineffective, and you will struggle to deliver your desired results. In my experience, I have noted that it is not the metric that is wrong; rather, it is the wrong understanding of objectives and how the results of risk assessment are communicated.

In a AML context I ensure the data is comprehensive l, up-to-date and relevant to AML objectives. I verify the integrity of data sources l, considering factors like accuracy, completeness and consistency. Additionally, I assess the appropriateness of data collection method and the reliability of data providers.

La verificación de la integridad de la data es una de las actividades fundamentales previas que debe efectuarse toda vez que cualquier error / desviación nos puede llevar a tomar decisiones / medidas correctivas inadecuadas.

Considere a ado??o de novas abordagens ou tecnologias para o gerenciamento de riscos, sendo possível incluir o uso de ferramentas de análise de dados avan?adas, inteligência artificial ou aprendizado de máquina para melhorar a precis?o das previs?es de risco. O gerenciamento de riscos é um processo contínuo. Esteja preparado para iterar e melhorar suas práticas com base no feedback e nos resultados obtidos ao longo do tempo.

Before processing any data points, it is essential to ensure data quality through the following steps: 1. Analyze the data to comprehend its structure, completeness, and consistency. 2. Perform data cleansing to remove errors, duplicates, and standardize formats. 3. Validate the data to verify accuracy and reliability. 4. Confirm that all required fields are filled, minimizing significant gaps. 5. Ensure data consistency across different sets or sources. 6. Assess the timeliness and relevance of data for effective decision-making.

To review your risk management framework and methodology: ? Examine data sources, the calculation methodology, risk model assumptions ? Review historical data, run sensitivity analyses and engage SMEs ? Examine how risks are identified, assessed and mitigated ? Check if the framework aligns with the best industry practices, regulatory requirements and the firm's specific needs ? Ensure a framework captures known and emerging risks ? Get insights from key stakeholders ? Discuss risk management practices and challenges ? Enhance data quality ? Improve risk analysis and prediction capabilities with advanced analytics ? Monitor the framework's effectiveness ? Incorporate scenario analysis and stress testing ? Include various plausible scenarios

A framework is like a recipe for businesses to handle potential problems. Just as following a recipe ensures a delicious outcome, using a framework helps to identify, assess, and manage risks. It ensures dealing with risks consistently, preventing important details from being overlooked. This framework covers all types of risks a business might face, ensuring nothing crucial is left out. It prioritizes risks, focusing on the most serious first, much like deciding which ingredients are most important in a recipe. E.g. the process followed by commercial bank for evaluating loan applications should be standardized to ensure that similar criteria are applied uniformly to all applicants, regardless of their location or the branch they visit.

In the AML filed I’d reassess my framework and methodology.I’d ensure alignment with regulations, update risk assessment methods, validate data sources, enhance detection models. I’d explore machine learning for better predictive analytics and regularly reassess for effectiveness.

Tan importante como la decisión de gestionar nuestros riesgos empresariales es el hecho de actualizar nuestros niveles de apetito y tolerancia al riesgo en función a la realidad empresarial que se este enfrentando.

Validating metrics and indicators is like double-checking measurements in a recipe to make sure the dish turns out just right. It's about making sure the data used to understand risks is accurate and reliable. By checking and confirming that the information you're using is trustworthy and relevant, you can be more confident in the insights you gain. It's like making sure all the ingredients you're using are fresh and in the right amounts. Validating metrics also helps ensure that you're not missing any important details or leaving out key factors that could affect your decisions. It's about making sure everything adds up and makes sense, so you can make the best choices to keep things running smoothly and safely.

De realizar cambios fundamentales y estructurales en nuestra estrategia empresarial, estos deben estar directamente correlacionados con nuestros indicadores de riesgos y desempe?o organizacional.

In AML I would prioritise reassessing relevance and effectiveness. I’d communicate the need for thorough review of indicators to ensure alignment with current regulatory requirements and emerging risks. It’s vital to incorporate dynamic factors like transaction patterns, customer behaviour and regulatory updates into the metrics to enhance detection capabilities. Collaboration with stakeholders to identify gaps and refine indicators would be a key for more accurate risk assessment and mitigation in our AML efforts.

La comunicación de nuestros Indicadores de riesgos junto con sus explicaciones debe estar totalmente alineada con la política de comunicación interna y externa de la organización ?, así como con las normas regulatorias del caso.

Lo único permanente es el cambio… por ello no podemos permitir que nuestros indicadores en general no reflejen la realidad de nuestras organizaciones.

If Risk Management metrics and indicators are inaccurate, updating them is essential. This entails revisiting selection criteria, aligning with current objectives, and incorporating stakeholder feedback and new data sources. Regular review and updates ensure metrics provide meaningful insights for informed decision-making and proactive risk mitigation.

In the cases where the risk management metrics and indicators are not providing accurate insights, it is important to examine whether they are "lagging" or "leading" indicators and determine if they align with the overall objectives of risk monitoring and the intended purpose. Lagging indicators reflect past trend and might not provide timely insights for preemptive risk management, whereas leading indicators offer predictive insights that can help anticipate and prevent potential risks. Through iterative re-evaluation of metrics and continuously learning about them, it ensures that those indicators are relevant and meaningful for decision making.

? Verify compliance with the metrics, that they are being measured correctly and that the appropriate criteria are being used to evaluate the risks, otherwise these attributes could be reformulated with prior validation by the entire risk team. ? Measurement goals must be selected, quantifiable questions related to said goal must be identified, and ways of visualizing the information (indicators) must be prepared that help answer the questions and communicate the values to be analyzed. ? It is important to identify the risk management indicators that are most useful and prioritize them to focus on the most important ones.

Change is inevitable. Cross-check the metric indicators and record the changes. -Review the dependencies, KRA/KPI, and metric indicators with the owners and update the changes. -Validate the Risk appetite and threshold against which a few metrics are being measured. -Review the market trend of the business and relevant metrics and indicators and adapt/adjust reports accordingly. -Explain the changes and insight of the new metrics and indicators to the client and relevant stakeholders. -Use visualization tools that reflect the metrics and indicators in meaningful ways. -Eliminate delays or human errors, fetch real-time indicators, automate the report, and make it accessible from anywhere, anytime.

Regularly benchmark your risk management practices against industry peers to identify opportunities for improvement. Invest in ongoing training and development to enhance risk management capabilities across the organization. Prioritize agility and flexibility in adapting risk management strategies to changing circumstances.

Thinking about accuracy checks of indicators and metrics in risk, I suggest: - Check the data capture source and intermediate databases for failures. - Check whether there are inconsistencies in systemic routines or whether there are any operational failures due to incorrect processing of information. - Review whether the frequency of updating indicators is timely. - Perform backtest on data and indicator model to check any material deviation. - Evaluate whether the consolidation of two or more indicators into a single one can bring greater insight, or the opposite, whether a single indicator could be divided into two, allowing greater monitoring exploration. - Check that the metrics are not too conservative or bold and perform calibrations