Change Management and Operational Risk with AllianceBernsten, L.P.

NEW YORK - July 11, 2013 - PRLog -- Operational risk management has moved beyond the simple calculation of capital requirements. Today operational risk managers need to have a proactive, holistic approach to operational risk to ensure they maintain their organizations’ profitability and reputation. Recent financial scandals have shown that operational risk could bring tremendous losses and not every firm is capable of recovering from them.

Paul Emerson answered a series of questions written by GFMI before the forthcoming Proactive Operational Risk Management Conference, September 9-11, 2013 in New York, NY. Mr. Emerson shares his thoughts below on why good change management starts with the right tone from the top.

How important are operational risks in the change management process?

Paul Emerson: Change represents one of the greatest stresses on our people, processes and systems. In fact, it would not be a stretch to think of change as a category of operational risk itself. Therefore, the business managers must take all the risks and controls that are implicated in the change into consideration to insure the process doesn’t break. Cutting corners on this review could ultimately place the client experience, and a new product or initiative’s commercial viability, at risk.

How do you develop strong working relationships between operational risk and product development teams?

PE: A strong working relationship is one that can only be built on mutual respect. I have found that the most important way to build this relationship is to show that the risk team’s involvement is one that adds value. It is not enough to just be present in the discussions. Rather, the risk management engagement should be limited to our areas of expertise and should be clearly defined and focused. Building this relationship is only part of the battle. It is equally important for the business leaders to see the benefit of the risk management’s engagement, as opposed to the potential costs. Without senior leadership support, this working relationship will have little chance of long term success.

How do you make sure operational risk is managed and controlled over the whole product life cycle?

PE: When the culture of the firm makes it clear that business managers are the primary line of defense for operational risk and are similarly incentivized, operational risk should theoretically always be managed throughout the whole product life cycle. In recognition of the experiential differences between the firm’s managers, AllianceBernstein has mandated that a full risk review of each new product be considered early in the product development process. Once the product is launched, we require a reconsideration of the department’s risk map, which (the catalogue or process level risks and controls) incorporates any material changes to the processes.

How do you make sure innovation is not restricted by operational risk threats?

PE: A critical skill of a good risk manager is the ability to think creatively so that they don’t restrict innovation. Risk managers should not be in the business of saying “no” unless it is absolutely necessary.  Rather, we are engaged by business managers to help them manage the concerns they have. If we get in the habit of stopping progress or slowing innovation, we will stop getting those calls. The best way to prevent this negative impact is to increase the dialogue between the business who is innovating, and the middle back office staff that is being strained. As a result of open and honest discussions, we can almost always find a compromise (delayed launch, limited release, increased technology support, etc.) that is satisfactory to all.  

What do you think attendees would gain by attending the conference?

PE: It is my hope that attendees will gain a better appreciation of all the elements that a company must have in place to properly manage their business through change.  

Paul Emerson is a Vice President and risk manager responsible for the coordinated risk management support for AllianceBernstein’s Asset Allocation business. He previously served as an operational risk officer for the Fixed Income and Technology business units and as the global head of error management.