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NEW REGULATORY REQUIREMENTS

Financial Institutions to report on RISK CULTURE AND BEHAVIOURS

RISK CULTURE: ‘THE WAY WE DO RISK AROUND HERE’

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WE HELP YOU MEET APRA’S REQUIREMENTS

Our solution for measuring and improving risk culture and behaviours:

1. Enables organisations to implement and demonstrate effective

management of values, risk culture and behaviours.

2. Supports the Board, senior management, the Chief Risk Officer,

compliance and audit function in the above.

3. Does so with efficiency, clarity and simplicity by comparing risk

capability with performance capability, therefore highlighting both.

4. At the same time, managing the risk culture with our approach

offers real opportunities for improving performance

Culture … is about what is truly important in an organisation. It is about the way people actually behave (rather than what they should do, or even would like to do).

Soft Stuff, p6, I Laughlin, APRA, December 2014

An institution’s risk culture is strongly influenced by the ‘tone at the top’. APRA expects the Board and senior management to demonstrate their commitment to risk management and foster a sound risk management environment

Prudential Practice Guide, CPG 220, p7, APRA, January 2015

There is now a requirement for APRA regulated companies to implement and demonstrate effective governance of risk culture, values and behaviours, as integral components of the APRA mandated risk management framework.

Ref: Prudential Practice Guide, CPG 220 – Risk Management, APRA, 2015

“CPS 220 requires a Board to ensure that they form

a view of the risk culture in the institution, and the

extent to which that culture supports the ability of

the institution to operate consistently within its risk

appetite, identify any desirable changes to the risk

culture and ensure the institution takes steps to

address those changes.”

CPG 220, section 21, page 7

Our capability

solution has a proven record of

improving outcomes

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OUR VALUE PROPOSITION FOR APRA-REGULATED ORGANISATIONS

OUR METHODOLOGY AND DELIVERABLES

Our methodology relies on the practical and powerful concept of capability.

Capability describes the quality of the work environment, including structure, infrastructure, resources and processes, and the attitudes and skills of people and teams.

➢ Capability includes all the elements in which culture takes place – that is, in which and through which culture expresses itself.

➢ Capability ‘contains’ culture.

➢ Capability is a reflection of the board’s focus; of management focus and skill; of the type and quality of the environment created by the organisation; and of its culture.

Capability relates to achieving results on the ground through the right values, culture, attitudes and behaviours supported by the right environment (including structure, infrastructure, resources and processes) and the right skills.

See APRA’s Prudential Practice Guide, CPG 220,

p18, APRA, January 2015, for more details.

➢ We measure the values, culture and behaviour indicators APRA deems essentials for sound risk management.

➢ We produce actionable metrics on risk and performance re culture, values, behaviours.

➢ We help organisations track and improve these indicators.

➢ We produce informative reports for the Board, risk committee, senior management, Chief Risk Officer and internal/external audits.

➢ We enable organisations to implement and demonstrate management of values, risk culture and behaviours, as required by APRA.

We help organisations comply

with APRA’s ‘three lines of defence

governance model’

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We measure capability, values, culture and behaviours

We started work on our methodology for measuring capability in the mid 2000’s and we have tested it over three years in a large mining company. Quarterly measurements of performance (KPIs) and capability show that performance strongly correlates with capability.

Capability is a lead indicator of performance.

➢ We measure capability along the six dimensions shown on the previous page.

➢ Each dimension contains three sub-dimensions that consider three complementary aspects of the dimension.

➢ Each sub-dimension contains between 2 and 3 questions.

We use dialogues to complement and replace surveys

In many situations, we measure capability using dialogues instead of surveys.

Dialogues are the hallmark of communication, team work, leadership and innovation.

Traditionally management has relied on surveys to know how it is and feels at the frontline. Unfortunately surveys are time-consuming and often meet with significant pushback from employees; further, surveys are one-way channels. A better solution – our solution – is to have genuine cloud-based two-way communication that informs management of the situation on the ground and gives them the opportunity to engage with staff about strategy, objectives, challenges and change.

Dialogues enable managers to magnify their leadership and employees to magnify their contribution. Challenges can be met more decisively and solutions implemented more effectively.

We produce action-oriented reports

Capability is a powerful and effective tool for gaining a fine-grained understanding of the organisation’s ability to meet its corporate objectives, and for managing and improving this ability.

Our reports clearly show which indicators (whether question, sub-dimension or dimension) are in need of attention.

They are colour-coded to show the urgency that is required when challenges are detected.

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We track and report on initiatives

When action is needed, we help define and track initiatives, and we report on outcomes.

We keep comprehensive records of past and current results. We display trends of all key indicators.

We compare risk capability with performance capability

We use our proprietary methodology to show, for risk capability and performance capability: Board focus, management focus and skill, the type and quality of the environment created by the organisation, and its culture.

Comparisons clearly highlight similarities and differences and help understand strengths and weaknesses in both areas.

This enables management to take appropriate action to foster an adaptable learning organisation, with high performance and effective risk management.

SUMMARY – LEVERAGING CAPABILITY FOR BUSINESS BENEFIT

Features Benefits

Measure and track capability for risk and performance throughout the organisation

Gives a fine-grained understanding of capability for risk and for performance

Produce actionable metrics on risk and performance re culture, values, behaviours

Produce informative reports for the Board, risk committee, senior management, Chief Risk Officer and internal/external audits

Enable the organisation to implement and demonstrate management of values, risk culture and behaviours, as required by APRA

Help improve risk management and performance Real possibility of tangible business benefits through increased performance

Can transform meeting APRA’s requirements from cost to benefit

Help secure the business for the future

Flexible web-based implementation Customisable, no infrastructure investment

Manage capability for

performance and risk, and create an adaptable

and resilient organisation

www.CapabilityInstitute.com paulguignard@CapabilityInstitute.com

+61 414 087 080 12 Jacaranda Avenue, Patonga, NSW 2256, Australia