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In this episode of the Risk Intel podcast, we bring back ERM experts Cathy Jackson, Beth Nilles, and Niki White to recap their previous examples of identifying hidden factories within their financial institutions. Each guest shared real-life examples to highlight the importance of mitigating risks associated with redundant processes and helped to quantify the potential costs of these hidden factories causing inefficiencies.
Cathy Jackson underscores the importance of mitigating risks associated with hidden factories. She highlights the need for pre- and post-activities to ensure project success, emphasizing the importance of getting key stakeholders on board and updating procedures to monitor behavior. Cathy's example of wire transfer software implementation illustrates the consequences of overlooking system capabilities, leading to additional manual processes and inefficiencies.
In her example, her organization did all the pre-activity work of getting key stakeholders on board, but didn’t do the post-implementation work to ensure everything worked as smoothly as possible and didn’t create additional work. By the time the organization looked at the process, Cathy estimated that the people in the branches, using and logging the wire transfer software manually, were spending an additional 4 hours a week, when the software could have automated the process for them.
Cathy estimates this ended up costing $8,000 - 10,000 per year X Per Department
“…this benefit which you had hoped and expected to have received after implementation would have just been non-existent because you've layered in a bad process and the people just developed ways to do their jobs without really having that retrospective view” - Cathy Jackson
Listen to Cathy's full story in this previous episode
Beth Nilles shares her insights on the labor-intensive process of preparing and reconciling monthly and quarterly reports in financial institutions. She discusses the hidden costs involved, such as the opportunity cost of diverting resources from strategic activities and the possibility of errors requiring re-filing call reports. Beth's example underscores the need for organizations to quantify the impact of inefficiencies and consider the financial burden they impose.
In Beth’s example, the process required a lot of time chasing colleagues to manually input data related to collateral and policy exceptions. Then it took time to reconcile the data inaccuracies and inconsistencies, since each department had it’s own way of measuring and recording the data. Beth estimates on a good year, with very limited data inaccuracies, the bank spent $6,000 reconciling this data, which doesn’t even measure the opportunity cost lost since so much time was spent reconciling data.
The process could be even more expensive, in terms of both cost and credibility, if there were issues that caused a call report to be refiled.
Listen to Beth's full story in this previous episode
Niki White recounts her experience with uncovering hidden factories during the annual review and updating of Sarbanes-Oxley (SOX) controls. She discusses the extensive time and effort required to manage manual controls, involving briefing functional leaders, diving into current practices, and achieving final sign-off. Niki quantifies the cost of administering the hidden factory, highlighting the financial implications of turnover and procedural complexity.
In Niki’s example, it took about 12 people to get all the data she needed to complete the SOX documentation. By her estimations this costed their bank about $15,000 year, but as more executives get involved with the process or stakeholders get promoted, the cost could approach closer to $50,000 or greater per year.
Listen to Niki's full story in this previous episode
When you look around your institution, team or individual role, try to identify one hidden factory you feel could be causing inefficiencies or redundancies. Then try to quantify those to find an estimate cost to help build a business case. In Niki's example here are a few hidden costs identified to formulate how much it could have cost their bank.
(#) of People X (#) Time Spent = The Hidden Cost
In conclusion, Cathy, Beth, and Niki's insights provide valuable lessons for financial institutions seeking to optimize their operations and mitigate hidden factory risks. By implementing proactive mitigation strategies and quantifying the impact of inefficiencies, organizations can streamline processes and drive greater operational efficiency. As the series on hidden factories comes to a close, the podcast aims to equip listeners with the knowledge and tools to unearth and address inefficiencies within their organizations effectively. Next week will be the final episode on this special series on Hidden Factories - stay tuned for next week as we will provide a diagnostic tool to help you identify hidden factories at your organization!
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