Top Risks and Controls for Strategic Planning

The Fastest Growing RISK REGISTER for Banks, Insurance Companies, Brokerage Firms, Money Service Bureaus and Fintechs

Dec 2024

Any organisation must have a strategic planning process in place, but it is especially important in the banking sector due to the high risk there.

hazards that affect banks include operational, reputational, credit, market, liquidity, and operational hazards.

Strategic planning departments in banks should regularly assess risks in order to detect potential threats, assess their likelihood and impact, and devise methods to effectively manage them.

Banks can proactively manage potential risks, lessen the possibility of unfavourable outcomes, and ensure the survival and expansion of the organisation by undertaking risk assessments.

Business Intelligence and Analytics Function

In charge of gathering, analysing, and interpreting data to offer insights into competitive environment, market trends, and consumer behaviour.

RISK : Data availability
Strategic planning relies on accurate and up-to-date data to inform decisions, but not all necessary data may be available to the department. This can make it difficult to plan effectively and make informed decisions.

Controls :

Develop contingency plans: In cases where necessary data is not available, having contingency plans in place can help mitigate the risk.
Improve data collection processes: Organizations should ensure that they are collecting all necessary data for effective decision-making. This can involve reviewing current data collection processes, identifying gaps, and implementing new methods for collecting missing data. Regularly auditing data sources and practices can also help ensure that the data being collected is accurate and up-to-date.

RISK : Data complexity
The data used in strategic planning is often complex, and may require specialized knowledge or tools to analyze and interpret. This can make it challenging for the department to effectively use the data in decision-making.

Controls :

Hiring personnel with specialized skills: Hiring personnel with specialized skills and knowledge in data analysis can also be an effective control. These individuals can help the department to better understand and use the data, and provide guidance and support to other staff members.
Improving data visualization: Improving the visual representation of the data can also be helpful. This can include creating charts, graphs, and other visual aids that make the data easier to understand and interpret.
Training and education: Providing training and education to the department staff on how to analyze and interpret complex data can be the most effective control in mitigating the risk. By providing the necessary skills and knowledge, the department will be better equipped to use the data effectively in decision-making.

RISK : Keeping up with technology
As technology continues to evolve, banks must ensure that their data collection and analysis processes keep pace. This can require significant investment in new technology and staff training to ensure that the department has the necessary skills and tools to effectively use data in decision-making.

Controls :

Continuous Training and Skill Development: Invest in regular training programs to upskill bank staff in data analytics and emerging technologies. This equips employees with the necessary knowledge and skills to effectively collect, interpret, and leverage data, enabling informed decision-making and reducing reliance on external expertise.
Implement Robust Data Governance Framework: Establish a comprehensive data governance framework that outlines clear guidelines, roles, and responsibilities for data collection, storage, analysis, and decision-making. This ensures data quality, privacy, and security, minimizing risks associated with evolving technology.

RISK : Regulatory compliance
Banks are subject to numerous regulations and compliance requirements, and the strategic planning department must ensure that their data collection and analysis processes are in compliance with these regulations.

Controls :

Deploy Automated Compliance Monitoring: Employing advanced technologies such as artificial intelligence and machine learning allows banks to automate the monitoring of their data collection and analysis processes. This proactive approach helps identify potential compliance gaps, flag irregularities, and generate real-time alerts, enabling swift corrective action to mitigate regulatory risks.
Implement Robust Data Governance: Establishing a comprehensive data governance framework enables banks to ensure compliance with regulations by defining data collection and analysis processes, data ownership, data quality standards, and data access controls. This framework ensures that all activities adhere to regulatory requirements, minimizing the risk of non-compliance.

Innovation Function

Liable for spotting new trends, cutting-edge technologies, and creative business strategies to spur expansion and improve customer experience.

RISK : Keeping up with the pace of change
Technology is evolving at an unprecedented rate, and new trends and business models are emerging all the time. It can be challenging for banks to keep up with these changes and identify which ones are most relevant to their business.

Controls :

Continuous Monitoring: Implementing a continuous monitoring program can help the bank stay abreast of new developments in technology and business models. This can include monitoring industry publications and news sources, attending industry events, and maintaining relationships with key stakeholders in the technology and financial services sectors.
Risk Assessment: Conducting a comprehensive risk assessment is the most effective way to mitigate the risk of technology evolving at an unprecedented rate. By assessing the potential impact of new trends and business models on the bank's operations and identifying areas of vulnerability, the bank can implement targeted controls to address these risks. The risk assessment should be updated regularly to keep up with the pace of change.

RISK : Limited resources
The strategic planning department may have limited resources in terms of time, budget, and personnel. This can make it difficult to conduct thorough research and analysis of emerging trends and technologies, and to implement new ideas effectively.

Controls :

Collaboration and Partnerships: Foster collaboration within the department and establish partnerships with external stakeholders, such as industry experts and research institutions. This will enable knowledge sharing, access to specialized expertise, and the pooling of resources. By leveraging external partnerships, the department can expand its capabilities, tap into emerging trends, and stay updated on new technologies without solely relying on internal resources.
Resource Optimization: Prioritize resource allocation based on critical areas of strategic planning. Conduct a thorough assessment of the department's time, budget, and personnel to identify areas that require immediate attention. Implement efficient project management techniques, streamline processes, and leverage technology to maximize resource utilization and minimize wastage.

RISK : Regulatory constraints
Commercial banks operate in a heavily regulated environment, and there may be regulatory constraints that limit their ability to adopt new technologies or business models. This can make it challenging for the strategic planning department to identify and implement emerging trends and technologies.

Controls :

Collaboration with Regulatory Bodies: Foster open communication channels and collaborative relationships with regulatory authorities. Proactively engage in discussions, share insights on emerging technologies, and provide input during regulatory policy development. By actively participating in shaping regulations, banks can advocate for frameworks that facilitate the adoption of new technologies while addressing regulatory concerns effectively.
Regulatory Compliance Analysis: Establish a dedicated team within the strategic planning department to monitor and analyze regulatory changes continuously. This team should assess the impact of new regulations on the adoption of emerging trends and technologies, identify potential constraints, and propose proactive solutions to ensure compliance without stifling innovation.

RISK : Uncertainty
Emerging trends and technologies can be uncertain and unpredictable, which makes it difficult for banks to determine which ones will become mainstream and have a long-term impact.

Controls :

Collaboration and Information Sharing: Banks can collaborate with other industry stakeholders, such as regulators, industry associations, and technology companies, to share information and insights on emerging trends and technologies. This can help banks to stay informed about the latest developments and make more informed decisions.
Risk Assessment and Monitoring: Banks can conduct regular risk assessments and monitor emerging trends and technologies to identify potential risks and opportunities. This can help banks to prioritize their efforts and allocate resources effectively to mitigate the risk.
Scenario Planning: Banks can use scenario planning to anticipate different future possibilities and their potential impacts on the industry. This can help banks to prepare for potential changes in the market and develop strategies to adapt to emerging trends and technologies.

Market Research Function

Responsible for doing research on the banking sector, including a review of competitors and research on client needs, preferences, and behaviour.

RISK : Bias and subjectivity
Research studies can be influenced by the researcher's bias or subjectivity. Researchers must be careful to avoid these biases and maintain objectivity in their research.

Controls :

Blind or double-blind studies: In these types of studies, the researcher is unaware of which participants are receiving the treatment being tested and which are receiving a placebo or alternative treatment. This reduces the risk of bias, as the researcher's expectations and beliefs cannot influence the results.
Peer review: Having other experts in the field review a study can help identify and correct any potential biases or subjectivity in the research.
Standardized protocols and procedures: Using standardized protocols and procedures for data collection, analysis, and interpretation can help ensure consistency and reduce the risk of researcher bias.

RISK : Data access
Banks are regulated institutions and have strict data privacy policies. As a result, obtaining relevant data for research purposes can be a challenge.

Controls :

Data Sharing Partnerships: Establishing secure data sharing partnerships between banks and trusted research institutions can effectively mitigate the challenge of obtaining relevant data. These partnerships should ensure compliance with strict data privacy policies while enabling researchers to access anonymized or aggregated data for their studies.
Privacy-Preserving Technologies: Implementing advanced privacy-preserving technologies, such as secure multi-party computation or differential privacy, can help mitigate the risk. These techniques allow researchers to analyze sensitive data without directly accessing or compromising individual privacy, ensuring compliance with data privacy policies while still facilitating research.

RISK : Sample size
The banking industry serves a vast customer base, and it can be challenging to obtain a representative sample for research purposes.

Controls :

Quota Sampling: This involves selecting participants based on predetermined quotas (such as age, gender, or income). This method can help ensure that the sample is representative.
Random Sampling: This involves selecting participants from the population at random. This method can be effective but may not guarantee a representative sample.
Stratified Sampling: This involves dividing the population into smaller, more homogeneous groups (strata) and then randomly sampling from each group. This approach ensures that each subgroup is adequately represented in the sample, reducing the risk of bias.

RISK : Time and cost
Conducting research on the banking industry can be time-consuming and expensive, especially when it involves collecting primary data from customers or conducting in-depth analysis.

Controls :

Automation and digitization: Implementing advanced technology solutions such as data mining tools, automated surveys, and machine learning algorithms can significantly reduce the time and cost associated with conducting research in the banking industry. This allows for efficient collection and analysis of primary data, leading to quicker insights and informed decision-making.
Collaborative partnerships: Forge strategic alliances with academic institutions, industry associations, or research firms to share resources, data, and expertise. Collaborative research initiatives enable access to a broader pool of primary data, reducing the need for extensive data collection efforts. Sharing costs and leveraging combined knowledge can streamline the research process and yield more comprehensive results at a fraction of the cost.

RISK : Trust and confidentiality
Customers are often hesitant to disclose their banking information, and banks are careful about sharing customer data with third parties, including researchers.

Controls :

Secure Data Encryption and Storage: Banks should employ industry-standard encryption techniques to safeguard customer data both during transmission and storage. This helps ensure that even if the data is accessed by unauthorized individuals, it remains unintelligible and useless, reducing the risk of data breaches.
Strong Data Privacy Policies and Consent Mechanisms: Implementing robust data privacy policies and obtaining explicit consent from customers can help build trust and confidence. Clearly communicate how their banking information will be protected and shared, ensuring transparency and control over their data.

Performance Management Function

Accountable for creating performance measures, establishing goals, and monitoring progress towards strategic objectives.

RISK : Complexity of banking operations
Commercial banks engage in a wide range of activities, such as lending, investment banking, wealth management, and trading, making it challenging to develop metrics that accurately capture the bank's overall performance.

Controls :

Risk-Based Performance Metrics: Develop and implement a comprehensive set of risk-based performance metrics that take into account the diverse activities of commercial banks. These metrics should focus on evaluating the risk-adjusted returns, capital adequacy, and liquidity management across different business segments. By capturing the bank's overall performance in a risk-sensitive manner, these metrics provide valuable insights into the effectiveness of its activities and help identify potential areas of concern.
Robust Internal Controls: Establish strong internal control mechanisms that promote transparency, accountability, and risk management. This includes implementing segregation of duties, regular internal audits, and compliance monitoring to ensure adherence to regulatory requirements and industry best practices.

RISK : Different business models
Commercial banks operate with different business models, and what works for one bank may not work for another. This can make it difficult to develop a standardized set of metrics that are applicable to all banks.

Controls :

Regulatory Compliance: Compliance with regulations and guidelines can help mitigate the risks associated with different business models of commercial banks.
Risk Assessment: Conducting a regular risk assessment of each bank's operations can help identify and mitigate potential risks associated with different business models. The risk assessment should evaluate the effectiveness of existing controls, identify gaps, and provide recommendations for improvements.
Risk Management Framework: Developing a comprehensive risk management framework can help mitigate the risk associated with the different business models of commercial banks. The framework should include guidelines, policies, and procedures that are specific to each bank's business model, and should provide a standardized set of metrics that can be applied across the board.

RISK : Interconnectedness
Commercial banks are highly interconnected with other financial institutions and the broader economy. Therefore, measuring the performance of a bank in isolation can be challenging as it does not reflect the wider impact of the bank's activities on the economy.

Controls :

Capital Adequacy: Banks can ensure they have sufficient capital buffers to absorb losses and reduce the risk of failure. Regulators impose minimum capital requirements on banks to ensure they can meet their obligations in the event of financial distress.
Regulatory Oversight: Strong regulatory oversight of banks can help to mitigate the risks associated with their interconnectedness with other financial institutions and the broader economy. Regulators can monitor banks' activities and take actions to prevent them from engaging in activities that could pose systemic risk.
Stress Testing: Conducting regular stress testing exercises can help banks identify their potential vulnerabilities and the potential impact of their activities on the broader economy. Stress tests involve modeling various scenarios to assess the bank's ability to withstand economic shocks.

RISK : Regulatory compliance
Banks operate in a highly regulated environment, and compliance with regulatory requirements is critical. However, tracking and reporting on regulatory compliance can be time-consuming and resource-intensive.

Controls :

Develop Robust Internal Controls and Processes: Establishing clear policies, procedures, and internal controls specific to regulatory compliance ensures systematic tracking and reporting. Regularly reviewing and updating these controls, coupled with effective training programs, enhances staff awareness and adherence to regulatory requirements, minimizing errors and improving efficiency.
Implement an Automated Regulatory Compliance System: Deploying advanced technology solutions that leverage artificial intelligence and machine learning can significantly streamline the tracking and reporting processes, reducing the time and resources required. These systems can automatically monitor regulatory changes, assess the impact on operations, and generate comprehensive compliance reports, enhancing efficiency and accuracy.

Project Management Function

Accountable for managing key initiatives from inception to completion, making sure they are delivered on time, and effectively allocating resources.

RISK : Complexity of banking operations
Commercial banks have a wide range of activities, making it challenging to implement new strategic projects that affect the entire organization. Banks need to ensure that they have the necessary expertise and resources to manage complex projects that may involve multiple departments, teams, and stakeholders.

Controls :

Change Management: To ensure that new strategic projects are successfully implemented, commercial banks need to have effective change management controls in place. Change management controls involve identifying the impact of the change, developing a plan to manage the change, communicating the change to stakeholders, and monitoring the implementation of the change. Effective change management can help mitigate the risk of resistance to change.
Project Management Office (PMO): Implementing a PMO can significantly improve project management in commercial banks. A PMO provides a centralized structure for project management, allowing for better coordination and communication between departments, teams, and stakeholders. It ensures that all projects are managed consistently and effectively, and that the necessary expertise and resources are allocated to each project.

RISK : Regulatory compliance
Banks operate in a highly regulated environment, and strategic projects may need to comply with various regulatory requirements. Banks need to ensure that their projects comply with these requirements to avoid penalties, reputational damage, or legal issues.

Controls :

Regulatory Compliance Framework: Implement a regulatory compliance framework that includes policies, procedures, and controls for compliance with applicable regulations. This should involve appointing a compliance officer or team responsible for identifying and managing regulatory risks, and ensuring that all strategic projects undergo regulatory compliance reviews.
Regulatory Compliance Training: Provide training to all employees involved in strategic projects on the importance of complying with regulatory requirements. This will ensure that all team members are aware of the risks associated with non-compliance and understand their role in complying with regulatory requirements.

Strategy Development Function

Responsible for creating both long- and short-term bank plans, including generating new business, expanding services, and improving operations.

RISK : Complexity
Banks are complex organizations with multiple departments and a wide range of products and services. Developing strategies that take into account all the various aspects of the bank can be a challenge.

Controls :

Cross-functional teams: Creating cross-functional teams can bring together employees from different departments and areas of expertise to work on strategy development. This can help ensure that all aspects of the bank are taken into account and different perspectives are considered.
Establishing a Risk Management Committee: A risk management committee can provide oversight and direction in identifying, assessing, and prioritizing risks across the organization. This committee can be made up of senior executives from various departments, including risk management, finance, and operations. The committee should meet regularly to review the risks, assess their impact, and develop strategies to mitigate them.
Governance Framework: Establishing a strong governance framework that defines clear lines of responsibility and accountability can help mitigate the risk of ineffective strategies. The governance framework should include policies and procedures that provide guidance on decision-making, risk management, and oversight of all departments and business lines within the bank.
Standard Operating Procedures (SOPs): Developing SOPs can help ensure that all departments and employees within the bank follow consistent processes and procedures. This can reduce the risk of inconsistencies and gaps in strategy development.

RISK : Economic Uncertainty
The banking industry is heavily influenced by economic trends and fluctuations, which can make it difficult to predict future market conditions. This can make it challenging to develop both long-term and short-term strategies that will be effective in a changing economic environment.

Controls :

Diversification: A crucial control measure is diversifying the banking industry's portfolio by investing in a wide range of sectors and markets. This helps mitigate the impact of economic trends and fluctuations by spreading risks across different industries, reducing the reliance on a single market.
Scenario Planning: Employing scenario planning techniques allows the banking industry to anticipate and prepare for various economic scenarios. By simulating different market conditions, banks can develop adaptable strategies that can be implemented swiftly when necessary, ensuring resilience in the face of changing economic environments.

RISK : Organizational Culture
Developing effective long-term and short-term strategies also depends on the culture of the organization. It can be challenging to align the strategic objectives of the bank with its culture, which can be deeply ingrained. Changing the culture of an organization to support new strategies can be a long and difficult process.

Controls :

Employee training and education: Employee training and education is an effective control to mitigate the risk of cultural misalignment. The bank should invest in training and education programs to help employees understand the importance of aligning their behavior with the bank's strategic objectives. This training can include workshops, seminars, and online courses.
Leadership commitment and communication: The most effective control to mitigate the risk of aligning the strategic objectives of a bank with its culture is through leadership commitment and communication. The senior management should take the lead in communicating the importance of aligning the bank's culture with its strategic objectives, providing guidance and direction, and reinforcing the new culture through their actions.

RISK : Regulatory Changes
The regulatory environment in banking is complex and constantly changing. Banks need to stay abreast of regulatory changes and ensure their strategies align with these requirements.

Controls :

Regulatory Compliance Monitoring and Reporting: Implementing robust systems and processes to continuously monitor regulatory changes and updates. Establish a dedicated team to track regulatory developments, conduct impact assessments, and promptly update internal policies and procedures accordingly. Regular reporting and compliance audits will help identify and rectify any gaps, ensuring the bank stays aligned with regulatory requirements.
Regulatory Risk Assessment and Scenario Planning: Conduct regular assessments of the bank's risk exposure to changing regulatory environments. Develop scenario-based plans to anticipate potential regulatory changes and their impacts. This proactive approach enables the bank to adjust strategies, implement necessary controls, and allocate resources effectively to mitigate compliance risks ahead of time.

RISK : Talent Management
Attracting and retaining top talent is essential for a bank's success. However, developing effective strategies for talent management can be challenging, particularly in a highly competitive industry. Banks must develop strategies that attract and retain the right people with the necessary skills to drive the bank's long-term success.

Controls :

Competitive Compensation and Benefits: Offering attractive and competitive compensation packages, including salaries, bonuses, and benefits, is crucial to attract and retain top talent in the banking industry. This ensures that skilled professionals are motivated to join and stay with the bank, recognizing their value and contribution.
Robust Talent Development Programs: Implementing comprehensive talent development programs helps banks nurture and enhance the skills of their employees. This includes offering training, mentorship, leadership development initiatives, and opportunities for career growth. Investing in employees' professional growth and providing a clear path for advancement increases their loyalty and commitment to the bank.

RISK : Technological Changes
Technological advancements are transforming the banking industry, and staying ahead of the curve requires constant adaptation. Developing long-term strategies that account for these changes can be challenging, as technology is always evolving.

Controls :

Agile and Adaptive Frameworks: Implement agile methodologies and adaptive frameworks to enable rapid response and flexibility in adapting to technological changes. Embrace iterative development, frequent feedback loops, and cross-functional collaboration to ensure quick adaptation to emerging technologies and evolving customer demands.
Continuous Innovation and Research: Establish a culture of continuous innovation within the organization, fostering research and development efforts to stay ahead of technological advancements. This includes monitoring emerging technologies, engaging in partnerships with technology providers, and actively participating in industry forums and conferences.