Season 2 | Ep. 32: Collecting More Timely and Frequent Data

In this episode of the Risk Intel Podcast, SRA Watchtower CEO Edward Vincent and Cathy Jackson, Director of Watchtower Implementation, delve into the best practices for evolving an Enterprise Risk Management (ERM) program. This insightful conversation covers the historical overview of risk management, the current state and challenges, emerging trends, and the driving forces behind the shift towards collecting more timely and frequent data.

This is part two of a four part series on how banks and credit unions can evolve their ERM program. If you missed Part 1 on standardizing KRIs, click here.

Historical Overview of Risk Management

Risk management has undergone significant transformation over the years and Cathy reminisced about how risk assessment used to be very informal, intuitive, and experience-based. This period lacked structured methodologies and relied heavily on historical or hindsight information, making it very reactive rather than proactive.

The next evolutionary step introduced more methodical and defined qualitative assessments, albeit still reactive and historically focused. This phase marked a transition towards a more structured approach, laying the groundwork for the sophisticated risk management frameworks we see today. This step was driven by reporting on a regulatory cadence, things that everyone reports like call reports or 10Ks. A major advantage of the regulatory cadence reporting was the opportunity to get measurements against peers.

With the regulatory cadence reporting, it was a broad look at information, at most quarterly, always with the annual look back. While this was a step up from the informal, experience based reporting ERM started at, this phase was still hindsight-focused, which caused risk management still to be reactive in its approach.

The Current State and Challenges of Risk Management

Today, risk management still faces the dual challenge of information overload and siloed monitoring. Institutions have moved from quarterly call reports and annual reviews, which provides a broad yet delayed view, to dealing with a continuous influx of data from various sources. Data is now coming continuously from the banks core, general ledger, specialized internal reports, ancillary systems, and more. While this data is timely and actionable, it is often monitored in isolation, leading to fragmented insights.

“The data is here, it is timeline, it’s actionable, but you’ve got to bring it all together to make it make sense in that risk lens” – Cathy Jackson

Cathy highlighted the need for integrating this data into a standardized and holistic risk view. The traditional quarterly cadence, while offering peer comparisons and comprehensive overviews, still falls short in today’s fast-paced environment. Financial institutions must adapt to more frequent and timely data evaluations to stay ahead. SRA Watchtower believes reviewing and monitoring your baseline KRIs monthly vs quarterly should be the new industry standard.

Current Trends in Risk Management: Data Frequency and Timeliness

The industry is witnessing a significant shift towards more frequent and timely data collection. Cathy shared an example of a bank that deviated from the quarterly run of their ALCO reports and were running them much more frequently because the board was frustrated by stale data. By the time the data was getting to the board, prior to the shift in reporting frequency, the data was old and the bank had already adapted. This shift is crucial for making informed strategic decisions in a dynamic market.

“Who wants to be asked by a board member, or worse, an examiner, about what’s happening currently, and you share something that’s from last quarter” – Cathy Jackson

Information overload is a reality, with data arriving continuously. The challenge lies in distilling this data to focus on what’s important, ensuring it informs the overall risk strategy effectively. Cathy and Ed brought the conversation back to Part 1 of this series, and mentioned how institutions can start small by standardizing a set of baseline KRI’s. Maybe start with 40-50 risk indicators that are easily found and reported, then work your way up to whatever the bank’s goal is, typically 100-150 different KRI’s.

What is Driving the Trend Towards More Timely Data, Evaluated More Frequently?

Several factors drive the trend towards more timely and frequent data evaluation. The speed at which external factors impact financial institutions necessitates a proactive approach. Quarterly data often becomes stale, rendering it ineffective for timely decision-making. Cathy emphasized the importance of early identification of trends and patterns, likening proactive risk management to preventative care. Early insights allow institutions to pivot and address issues before they escalate, demonstrating agility and foresight.

“You’re able to demonstrate that you can, not just understand and grasp the risk that’s present, but risk that might be playing out in a different way than the way you thought they were going to play out and being able to pivot to address those things as they’re happening earlier.” - Cathy Jackson

Moreover, the increasing demands from board members, regulators, and the market itself push institutions towards a more continuous and integrated approach to data evaluation. This shift not only enhances risk management but also aligns with strategic goals, ensuring institutions remain competitive and resilient.

Conclusion

This episode of the Risk Intel Podcast with Ed and Cathy provides invaluable insights into the evolving landscape of risk management. As financial institutions navigate the challenges of information overload and siloed data monitoring, the shift towards more timely and frequent data evaluation becomes imperative. This proactive approach, driven by the need for agility and foresight, marks the future of effective risk management.

By understanding the historical context, acknowledging current challenges, embracing emerging trends, and recognizing the driving forces behind these shifts, financial institutions can build robust ERM programs that are not only reactive but also proactive, ensuring long-term stability and success.

Contact SRA Watchtower today to learn how we can help evolve your ERM program