Operational risk and innovation are not often discussed in the same conversation. That’s probably because operational risk is almost an acceptable background risk, as it is always present and can never be fully mitigated. And the fact that it is all-pervasive and embedded in the way people work, means that preventative process changes can sometimes feel like attacks on people’s way of working rather than risk management.
In contrast, “innovation” is all about the latest, newest and best that can be offered. Where operational risk is about stability and security, innovation’s goal is to bring in something new and different that shakes up the established way of doing things. Innovation can lead to large-scale changes at the organisational level, such as incorporating a new technology to improve efficiency, or at the level of individual traders and operators who are always looking for creative ways to improve results.
At the recent ComRisk virtual conference, one panellist briefly mentioned that innovation comes from decentralising decisions. And it is this that ties operational risk and innovation closely together.
If innovation comes from decentralising decisions, it is operational risk controls that make this possible. Decentralised decision-making relies on getting the right information to the right people at the right time. And to be able to do that, you first need to ensure that accurate, real-time data is centralised and readily available to those who need it.
Generating accurate data is one of the cornerstones of operational risk. And as anyone familiar with risk is aware, spreadsheets are not an effective or risk-free way to collate this data. CTRM systems were originally designed as a repository of information from across commodity businesses to provide this data to other business areas that needed it, but these older systems retained a large degree of operational risk.
The operational risks
The main operational risk in spreadsheets and older CTRM systems lies in getting information into the reporting system. It relies on individuals carrying out a task, then updating a log on another system to report what has occurred. There are a wide range of errors that can occur at this stage, from typing or copying errors as data is entered, to forgetting to update the record or doing so after the data has already been used elsewhere. And spreadsheets carry even more risk, with the potential for accidental duplicates, overwriting information and disrupting formulae among other risks.
Solving both problems
Modern commodity management systems, such as Gen10’s CommOS, aim to systematise data collection as part of the flow of work, mitigating operational risk and storing all data in an easily accessible format where everyone who needs it has access, whilst still maintaining data security.
These commodity management systems include different automation features that mean individuals use them to manage their actual work. For example, CommOS creates contracts, Bills of Lading and other documents, calculating valuations and invoices based on your own information and custom formulae. CommOS also manages the flow of approvals, automatically sending contracts or shipments to the appropriate person/team at the click of a button, and includes integrated team calendars. This means that instead of relying on several different collaborative tools in different places, and the risk of individuals being out of the office or emails being missed, all team members are managing their work within the one system.
Commodity management systems also build a range of risk checks into the workflow, from preventing actions beyond a counterparty’s credit limit to alerting operators if a shipment does not match the contract’s specified weight or assay limits. They also include event triggers, where the system automatically performs tasks when a given event occurs, from updating counterparty KPIs in the CTRM when a payment is received in general ledger, to updating task deadlines in the calendar when a vessel’s ETA in port changes.
A commodity management system therefore mitigates a wide range of operational risks as well as the copying errors mentioned above.
If your organisation already has strong commodity management capabilities in place, it should be possible to add new risk controls and share data more widely as your innovation strategy changes. However, if this is not the case, commodity management systems can be easier and more cost-effective to implement than you may expect.
Commodity management systems are designed to replace a CTRM, or similar offline risk management efforts, whilst offering more support to logistics and other business areas than a CTRM, but some commodity management technologies can be integrated with your existing CTRM. For example, Gen10 offer a range of commodity management apps that integrate with your existing technology and add only the functionality that you need.
This means you can systematise your operational risk management and share data instantly between different technologies, getting more information to a wider range of decision makers faster than ever before. Decisions can be made faster, in the knowledge that the supporting data is accurate and the appropriate controls are in place, meaning that innovation is encouraged and improved across the entire organisation.
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