The majority of risk managers recognize the need for appropriate risk based management information to allow them to measure change and take timely and effective action. They understand that taking proactive action in response to change can have a beneficial impact on the business operating model and on the profitability of the business.
Within leading edge financial institutions, we see similar practices being followed:-
- An appropriate balance of key performance measures
- Emphasis on interpretation rather than production of reports
- Evaluation and simulation of business change
- A proactive program of credit strategy enhancements
But for some financial institutions this is still an aspiration rather than common practice, and delving into the reasons why there are several common themes; data availability and system constraints, resource conflicts, and the lack of appropriate tools. There is often the uncertainty around what reports are actually produced by different areas of the business, and consequently the gaps that exist.
These simple steps can help a move towards leading practice-
- Firstly, understand what reports are already available and what performance measures are used across the business.
- Secondly, benchmark these reports against good practice.
- And finally, put a plan together to close the gaps in the current reporting suite, taking into account any constraints.
A suite of good management information reports, used consistently across the business, can help to successfully drive business strategy.
It is essential that the business agrees upon a single set of management information reports that are then used by all to drive change. If each business area produces their own reports, potentially using different measures and data sources, it can often result in contradictory conclusions and actions. Not surprisingly then, the collective impact of these changes can lead to undesirable results.
In designing a suite of management information reports, it is important to understand the key performance indicators that are used across the business. These indicators (the measures and their drivers) can then be regularly monitored to understand trends over time, and also the impact of any sudden changes.
One such driver is the credit risk policy of the business. By measuring its effectiveness, identifying any deterioration in its performance, and by monitoring the profile of applicants/customers, any concerns can be quickly highlighted and the appropriate corrective action taken. Without these reports it is almost impossible to quantify the benefit of any improvements made to credit risk policy.
A benchmarking exercise helps identify any gaps that exist between the current reporting suite and good practice. In preparing a plan to close these gaps, it is sensible to consider what ought to be addressed immediately, what can be achieved in the short term, and what can be planned for longer term.
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