You’re a risk manager who has been mandated to plan cost-efficient augmentation of your team. You’ve opened a file, done save as, what next? Read how to move from tabula rasa to a plan.
Luckily, you have to hand the first installment in our augmentation guide for risk managers, so you know that augmentation involves either early career, fully trained, consultant analysts
- sitting next to you
- in Birmingham/Bordeaux/Berlin/Baltimore
- in India
- all of the above (leading to interesting discussions about who gets the best lunch)
Or alternatively, someone recruiting and training your in-house analysts, wherever.
To kick off your planning, you could look at the biggest unit – that’s going to be counterparty credit risk if your remit is across risk management. Augment a portion of that and you’re quids in. You might look at the area that you’re finding hardest to staff. These days that is usually risk modelling. You’d then be using augmentation fully. That all makes sense but one decision trumps all others, in terms of cost effectiveness and quality when planning augmentation across risk management:
To Humpty Dumpty or not to Humpty Dumpty, that is the question
Are you going to break up processes, or keep them intact? Here is an illustration - think about carrying out a counterparty credit application.
The devotee of the Humpty Dumpty stratagem says that some of the process parts don’t matter much, and so can go somewhere else. This view says that data is a pristine input to analysis. (I’m not sure how many leverage ratios, exceptional items or dodgy goodwill impairments these devotees have dealt with, but that is the view).
The challenge is that if you break off any substantial part of the process, you are then putting Humpty Dumpty back together again (where did that ratio come from? Is that management bio complete? Oh, there’s a legal case missing that I think matters – I’ll have to look it up). If what you are sending off is not substantial - say reported numbers only – then you’re not saving any labour, so what’s the point?
Depending on what you’re trying to achieve, the best thing about the Humpty Dumpty approach is that you can tick the augmentation box without much actually happening. You won’t have saved any money as you’ve sent away small processes. Any time saved is spent gluing Humpty Dumpty back together again. If there is money saved, it’s most likely come from extra work being stressfully extracted from your in-house team. However, everyone tasked with augmenting can slap each other on the back. … At least that used to be the case. These days, with bank profit pressures being what they are, the C-suite needs something real to happen.
The whole process approach, in contrast, says that you use the augmentation analysts in the same way you would treat in-house 25-year olds. They do whole credit applications, just like you or I did when we were kids. Start them off with toys they can’t break. Make sure a grey-hair is available to help them if they get stuck, and to check over the product once it’s done.
The challenge with the whole process approach is that the augmentation analysts need to be as smart and as well trained as the young analysts you might have hired yourself. Choose your augmentation provider carefully.
The upside from the whole process approach is that you get actual work done in a cost-efficient way. Your succession planning works. Your more senior staff work on the more interesting names and the job of management.
When planning risk management augmentation, it is important to take lessons from the long experience of front office. Analyst augmentation on the front office was usually Humpty Dumpty in the early days. Some of them have units offshore which number in the hundreds or thousands, but have no people with City or Wall Street experience! In the past few years, most new augmentation initiatives have tried to move on a whole process basis. The older initiatives which still rely on using number crunchers are often trying to upgrade, but that’s difficult once you have a Humpty Dumpty structure and culture in place. The renewed need for both relevancy and cost-efficiency makes the upgrade necessary though. When planning risk management augmentation, it’s crucial that you set up something which will really deliver quality along with cost savings, not just nominal body count.
Want to know more about how to plan your augmentation initiative to deliver quality and cost efficiency? Feel free to get in touch.
In the next part of the guide to cost-efficient team augmentation for risk managers, we’ll look at how you can communicate the changes to your team and win their buy-in.