Growing need for speed and flexibility - Edward Hida

The need for risk management to adapt to Agile methods represents an important mindset shift for institutions. But it is really just one aspect of a larger trend — the imperative for risk management to fundamentally transform itself to meet a more volatile environment characterized by an uncertain economic outlook, continuing regulatory change, and new competitive threats.1 Risk management should increase its focus on a wider range of non-financial risks such as cybersecurity, data, conduct and culture, fraud, third-party, and model risk, to name a few; move from a reactive to a proactive approach; and become a full participant in efforts to drive business performance and set overall strategic goals. By doing so, institutions can enhance risk management’s role as a proactive enabler of business performance. Adjusting risk management to work effectively with Agile methods will be an important part of this transformation.

Growing need for speed and flexibility In the financial services industry, change has become “business as usual.” On one hand, this is creating opportunity for institutions — for example, through digital and mobile channels that provide new avenues for reaching customers. On the other hand, the changes buffeting the industry are creating new and complex challenges.

Perhaps the most significant of these is growing competition, and the associated need to introduce innovative products while also increasing efficiency. Many competitors are now non-traditional players. Fintech companies, for example, are bringing new technology based products to market. Other industries, too, are entering the fray. Starbucks has become an innovator in the payments space, while the major technology and e-commerce companies — Facebook, Apple, Amazon, Netflix, and Google (FAANG) — are driving higher customer expectations for technology-enabled convenience and functionality. FAANG companies are also blurring traditional industry boundaries by offering their own financial services — and giving rise to the term “techfin,” used to describe technology companies that are moving into financial products and services. Indeed, evolving technology is a constant undercurrent in the disruptions taking place in the industry today. To keep pace with competitors and customers, institutions need to be increasingly adept at leveraging technology, such as cognitive analytics, artificial intelligence, machine learning, big data, and robotic process automation, and many are working hard to do so.

The changes that are reshaping financial services are having an impact on many fronts. Taken as a whole, they boil down to a need for increased speed and flexibility — the ability to rapidly develop and deploy new products, services, tools, and processes in the constant search for innovations that deliver better and faster customer experiences and do so at lower cost.

Faced with that need, institutions have begun to increasingly turn to Agile techniques for managing projects. In contrast to traditional project management, Agile take a less-linear approach, and instead, moves forward in an incremental and iterative fashion. An Agile project focuses on quickly completing a targeted portion of a project, testing it with customers or users, and then incorporating their feedback, over and over. Instead of planning, designing, and then releasing a full-blown new back-office accounting application, for example, a bank might create a quick pilot project with partial functionality, roll it out to a limited set of employees, make improvements based on their responses, and then repeat the cycle rapidly until the full new system is complete and ready for broad use.

Agile methodology is often associated with software development, where it has been in use since the early 2000s. However, many of its concepts are being applied to other types of change and development projects. In addition, the Agile methodology has its own lexicon and vocabulary. These concepts include “sprints,” or short bursts to complete a piece of work, usually lasting a few days to two weeks; “scrums,” which are short meetings held to review a recent sprint and focus on the next sprint; “standups,” which are brief daily update meetings of core team members; and “information radiators,” which are highly visible, public displays that let everyone see work progress at a glance. “User stories” are descriptions of specific aspects of the business problem, with work being divided across a number of user stories, while “personas” are hypothetical user profiles created to help guide the design of the solution or product.

Financial institutions are finding that Agile techniques can accelerate change and innovation. What’s more, they can also help increase customer satisfaction because of the built-in early involvement of customers in product development. And faster, more focused projects help reduce the cost of change initiatives.

In short, Agile is a good fit with today’s rapidly changing industry environment. However, it can be challenging to integrate it with the need for robust risk management. Indeed, the two areas represent two fundamentally different mindsets. While Agile emphasizes speed and action, traditional risk management focuses on deliberation and thorough assessments. Financial institutions that have not embraced risk management modernization and innovation may often find that the two are at odds with one another, which makes it difficult to take widespread advantage of Agile approaches.

While the traditional approach continues to work well for some applications, in many cases, such as new product development, Agile can afford financial institutions more agility and speed. Unlike the traditional project approach, which relies on thorough upfront planning, waterfall processes, and command-and-control driven work, Agile introduces more iterative planning and delivery. It typically involves a series of incremental changes, with frequent customer feedback, that ultimately result in a full, completed project, such as a solution or product. This approach is especially suitable in a world where companies are constantly trying to keep up with customer-driven, volatile change.

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