S2 | E14: What Does a Hidden Factory Look Like Inside a Bank?
“There’s a lot of errors, problems, and risks that can creep into a system that relies on a hidden factory to produce its results” – Shawn Ryan, CFO, SRA Watchtower
In the latest episode of the Risk Intel podcast, host Edward Vincent welcomed back Shawn Ryan, Chief Financial Officer at SRA Watchtower to continue the conversation of hidden factories and what a hidden factory could look like inside your bank. These covert inefficiencies, often overlooked, can significantly impede operational effectiveness and risk management efforts, necessitating proactive measures for identification and mitigation.
If you missed our first episode of this Hidden Factory series, click here to read the summary on “What is a Hidden Factory?”.
Hidden Factories Exist in Various Forms:
Hidden factories manifest as inefficiencies, technology gaps, and communication breakdowns within financial institutions. Shawn Ryan, drawing on his extensive banking experience, provides concrete examples, such as the limitations of spreadsheets in critical processes like cost accounting and budgeting.
"There's severe limitations to a spreadsheet both its dimensionality and then its stability... There's just a lot of challenges there". - Shawn Ryan, CFO, SRA Watchtower
Hidden factories can also exist due to departments using their own models for budgeting instead of official models, which would cause discrepancies, errors, and inefficiencies. Different departments using their own spreadsheets or models for budgets, risk and control self-assessments (RCSA) or other factors, can result in lots of additional time spent trying to piece this information into one official model or process and make them all fit. This can lead to an overemphasis on time spent on aggregating the information, instead of spending time analyzing it to make informed decisions. Aggregated data that gets pulled into something like an enterprise risk management (ERM) system can give a wide angle view of risk, so leadership doesn't miss opportunities for mitigation and decision-making.
Transparency and Visibility Are Essential for Effective Risk Management:
The episode underscores the risks associated with hidden factories and emphasizes the need for transparency and visibility into processes.
"Sound risk management is about taking on the acceptable amount of risk to achieve the outcome that you want to achieve. Hidden factories stand in the way of you being able to do that" - Shawn Ryan, CFO, SRA Watchtower
Shawn called back his experience at a previous company where he was asked to turn around the provision and the allowance calculations for loss, recovery, and fraud forecasts in a shorter time period. He started by getting everyone involved in the process in one room and outlining the process. By learning how the entire “links of the chain” worked together, they were able to streamline and improve the process efficiency.
By everyone being transparent about their own individual processes, the team started to uncover hidden factories and mitigated risk and inefficiencies. Once hidden factories are found, the risk can be mitigated by implementing standardized processes and technologies to streamline workflows and reduce manual efforts.
Proactive Measures Are Necessary for Mitigating Risks Associated with Hidden Factories:
Looking ahead, the host hints at future episodes on this topic where they plan to discuss the risks associated with hidden factories in financial institutions, how to mitigate those risks and how to them once identified. The episode serves as a call to action for financial institutions to recognize and address hidden factories within their operations. By understanding the risks associated with these covert inefficiencies and implementing strategies to uncover and mitigate them, organizations can enhance operational efficiency, strengthen risk management practices, and achieve desired outcomes in today's competitive landscape.
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