The science of chance

Riyad Bank’s first foray into operational risk management took three years and nearly a million dollars to complete – but it now claims to have one of the most sophisticated IT infrastructures in the Middle East. ACN reports.

For anyone working in the world of finance, risk is a necessary evil. The ability to weigh risk against potential gains or losses is a crucial skill – and now, IT can replace what was once a complex manual effort with sophisticated operational risk systems that minimise exposure.

David Letts, senior vice president of risk management at Riyad Bank decided to step in the unknown and look for such a system – which, as he explains, proved to be quite a task.

“Three years ago when we first recognised that we need an op-risk system, we started searching the world and discovered that there were really few that could do what we wanted. We wanted to make sure that we chose something that was international standard, not a process that no one else was using in two years time,” he says.

This caution necessitated a fair amount of research on the part of Letts and his team to find an appropriate solution. Three vendors were eventually shortlisted and SAS won the contract to supply the system. Unlike a typical IT project, he couldn’t rely on peer guidance to design the system.“In 2005, people were just starting to think about operational risk and Basel II. he whole process of thinking about operational risk has now been codified whereas in 2004 you could go to ten banks and get ten different answers,” says Letts.

Letts knew that he would happen to depend on the global experience and expertise of the vendor in order to ensure that his new system would adhere to accepted best practices. However, he says his research saved him from relying on SAS too much.

“With two years of very solid research under our belts, we knew we already had most things in place, but in disparate systems that represented old technology. hat we wanted was a well-proven vendor that has sufficient global expertise that could implement their system and then show us how to tailor our processes to suit the system,” states Letts.

Another source of time-saving was his decision to hire KPMG to do a bank-wide risk analysis: “We stored all the risks aside – so that by the time we came to do the SAS implementation, we just had to revise the file for a few updates and upload the whole thing, as opposed to a normal implementation where the vendor could spend months identifying risk.”

Through planning began in 2005 and SAS was signed on in 2006, Letts notes that the project did not kick off immediately: “There was a delay in the contract process because our internal processes take a little bit of time. We agreed in September 2006, gave it to vendor management, there was a bit of internal hoo-ha, then we had to start scheduling. We started the project in early 2007 and had the whole thing finished in nine months.”