It’s a poetic notion. A butterfly flaps its wings in Brazil and sets off a series of atmospheric events that eventually trigger a tornado in Texas.
In fact it doesn’t matter how frantically a bug beats its wings in Rio: it’s never going to cause a storm in Houston. But as part of chaos theory, the butterfly effect offers a neat explanation for the way that a tiny change in one part of a system can trigger a massive effect somewhere else.
And that is something which businesses - especially insurance and financial services organisations - ignore at their peril. What happens in one area can have a serious impact elsewhere and, ultimately, on the bottom line. The trick is foreseeing it.
Take the mis-selling of PPI. A failure to spot weak processes and to control personal conduct landed lenders with spiralling bills years down the line.
It can be difficult to correlate a single decision or incident with its knock-on cost to the organisation, especially when so much departmental data sits in unconnected silos.
But senior managers need that intelligence – and you, as the risk team, know how to provide it.
The fact is that any financial services organisation with a decent, business-wide enterprise risk and incident management system has all the relevant data at its fingertips. It just needs to know how to use it.
That’s where the risk team comes into its own. The risk management system collects data on operational risks, the effectiveness of controls, the outcomes of assessments, incidents, near-misses, and more, across the entire business.
It’s the quality of the data and what you do with it that makes the real difference in terms of business value. Join the dots and you can give your organisation the power to predict the less obvious, but potentially business-critical, effects of decisions and incidents.
Using artificial intelligence tools to analyse risk data, we have found some interesting, and often unexpected, connections between incidents, actions, risk assessments, and business cost.
These predictive-style insights are invaluable to business leaders considering their next strategic move.
Predictive Risk Insight starts with better data
The challenge for risk managers in creating relevant and actionable insights starts with the data. And the route to better data starts with business-wide adoption and utilisation of a risk system that is intuitive, relevant to individual users, and adaptable to change.
As David Smith, Head of Operational Risk at Direct Line, commented on the company’s choice of Xactium: “We felt we needed something pretty much off the shelf, something really intuitive to use, something that looked and felt a bit more like LinkedIn or Facebook, a style that you could easily review, something quite configurable without incurring a massive cost.
And from Alex Atkinson at the FCA, “We are easily able to make minor amendments ourselves in response to feedback from the front line supervisors. Things like changing field names, or adding fields, or adapting workflows, have all helped to increase user compliance and widespread adoption of the system.”
Almost any business-wide risk management system will fulfil standard compliance requirements. But the right system can do a lot more.