Three ways to prepare for what you know – and what you don’t

In financial services risk management, there are risks that you can expect and prepare for, and there are risks that are out of your control, difficult to predict and can lead to serious setbacks for your institution.

It’s important to develop strategies, tactics and responses for unwelcome situations. Here are some strategies that can help financial institutions better manage and mitigate risk:

1. Protect your reputation.
In financial services, some areas of an organization are especially vulnerable to risk and more difficult to repair than others – namely, reputation and customer satisfaction. When developing a risk management strategy, it’s essential to remember that risks affecting the balance sheet and business may bleed over and affect customers.

Of course, it is important to target and stratify specific risks according to the institution’s risk thresholds, but it is helpful to circle back to the broader implications of risk. How will customers be affected by operational, financial or enterprise risk? How will they perceive the institution in the face of such risk? By shifting the focus back to the customer and aligning their risk management strategy with their business mission, financial institutions can better shield their reputation from potentially irreversible damage.

2. Think beyond the daily ritual.
Has your institution planned its risk management actions and responses around standard, day-to-day risks? When you plan for the same scenario to occur each day, you are more likely to get comfortable with it and ignore red flags and warnings that would otherwise stand out.

This might not seem like such a bad thing. After all, repetition can build confidence. The problem arises when the average day is no longer the average day, “standard” risk escalates and familiar management methods no longer work, or simply don’t apply to the new situation.

When developing risk plans and processes, think outside the box and think steps ahead. A comprehensive action plan that addresses common, evolving and unlikely risks and scenarios from within and outside the institution will minimize unwanted surprises. With this in mind, it is helpful to apply a range of assumptions to your risk models and stress test your risk management processes.

3. Small risks can compound.
It is right to be concerned with large-scale risks, such as a recession. But keep in mind that seemingly trivial, unrelated risks within an institution can compile, interact and merge to create something just as problematic. If there is one lesson learned from the last financial crisis, it is that risks are interrelated and should be viewed holistically to understand their full implications.

It’s crucial that you ensure that your institution is shifting to a modern-day enterprise risk framework; this will minimize the impact of risk that one function may have on another.

To learn how MountainView Financial Solutions, a Situs company, can help your institution prepare, manage and mitigate risk, email