How I Closed 400 Issues in Three Years.

Issues are manifested risks; in other words, if a company lacks effective risk mitigation techniques, it may encounter deviations from expected results and miss possibilities for growth and value creation for its customers, stakeholders, and collaborators.

Regulated enterprises employ a formal resolution process known as "issue management" to address these deviations.?

For example, when performing transactions on behalf of their customers, banks may fail to generate the necessary paper trail to demonstrate compliance with local or international standards. When such deviances are discovered by the company or through a formal internal or external assessment, the institution's issue management procedure must document, evaluate, and remedy the event.

I know what you're thinking: "To close four hundred issues, you must have a fairly large inventory of issues to begin with." A large banking institution typically has a vast inventory of issues. There are several reasons for this.

The Office of the Comptroller of the Currency (OCC, 2024) reported this spring that the Federal Banking System is experiencing elevated operational risk: “The financial industry is responding to an evolving and increasingly complex operating environment. Cyber threats continue as malicious actors target the financial services industry and their key service providers with ransomware and other attacks. Increasing digitalization, new and innovative product and service adoption, and third-party use increase bank operating environment complexity, creating both opportunities and risks. Continued check and wire transfer fraud and increased payment fraud incidents both underscore the importance of fraud risk management.”?

As banks adapt to the hazards of their dynamic ecosystem, their issue inventory will increase, unless they adjust their risk-management strategy (more on that in future columns). Meanwhile, their lines of business, which are responsible for the operational risks inherent in their operations, must resolve issues in a timely, permanent, and unquestionable manner.?

-- So, how can a bank close 130+ issues every year?

Here is my recommended approach:

1. Use project management techniques and tools.

According to the Project Management Institute (PMI, n.d.), a project is a temporary endeavor that aims to create unique products, services, or results. As a result, issue management efforts perfectly fit this definition. Therefore, to effectively address and prevent the recurrence of issues, it is crucial to utilize project management techniques. This involves identifying and resolving the root cause of the problem, as well as implementing control mechanisms.

Issues should be allocated to a project manager who is equipped with tools to create a detailed project plan that identifies deviations from the baseline and responds effectively to delays. They should have an empowered team, top-level management support, adequate resources, and suitable organizational visibility.

2. Use adequate governance to drive results.

Periodic reviews of issue management projects at the appropriate organizational level are required to ensure proper configuration and successful implementation.?

During the planning process, governance leaders should ensure that the appropriate stakeholders are included, that the issue-resolution effort is adequately funded, that the necessary technological resources are available to tackle the problem, and that the appropriate issue manager is appointed to the project.

During execution, governance leads should validate that the project is meeting its milestones on time and within budget, and throughout control, governance leads should make escalation processes available to the issue manager and its team to remove roadblocks and ensure alarms are triggered at the appropriate level when the delivery timeline is compromised.

Finally, those in charge of governance should emphasize the importance of using control design techniques to guarantee that there are built-in ways to identify drivers, scenarios, or triggers that could lead to the problem recurring and taking the necessary steps to prevent setbacks and new related issues from occurring.

3. Use data to identify the issue's root cause and validate closure.

We should use data to determine the appropriate activities to address the problem. Business data and statistics are essential tools for determining the fundamental cause of an issue. In the absence of data, experimentation should also identify the essential variables in the process to regulate. For example, the Design of Experiments (DoE) is an effective method for defining the operational parameters required to control and accomplish the desired outcome. DoE minimizes the number of trials and tests needed to optimize a process or product, making better use of resources including time, money, and materials.

Data-driven solution design ensures that challenges are resolved effectively. We should also use statistics to ensure the long-term sustainability of our solutions.?

4. Implement a control mechanism to avoid relapses.

We should strive to use controls rationally to mitigate risks. However, after closing a problem, it is critical to implement an adequate control mechanism to keep the issue's drivers and triggers from recurring. Furthermore, controls should provide indisputable evidence that their procedures are running as intended and within the institution's risk appetite.

Statistical control charts, hypothesis testing, and data visualization tools are all examples of data-driven tools that can be used to prevent issues from recurring.

-- But if we solely devote resources to closing issues, we'll wind up in a never-ending loop of reacting to internal audits and external reviews, right?

Correct. A rational strategy would strive to considerably minimize the number of issues closed versus opened over the year. To reach this goal, we must establish a proactive, enterprise-wide, data-driven, risk management strategy that improves the effectiveness of the control environment, streamlines its processes, and reduces operational costs. Stay tuned for more updates on that topic...

In the meantime, let me hear your thoughts.

Daniel

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Copyright 2024 Daniel Espejel

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Bibliography

What is a Project, Examples and the Project Lifecycle | PMI. (n.d.). https://www.pmi.org/about/what-is-a-project

Somma, G. (2008). Project management from the middle. Paper presented at PMI? Global Congress 2008—North America, Denver, CO. Newtown Square, PA: Project Management Institute.

OCC (2024). The OCC report highlights key risks in federal banking system. OCC.gov. https://www.occ.treas.gov/publications-and-resources/publications/semiannual-risk-perspective/files/semiannual-risk-perspective-spring-2024.html

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