Archive | July 2015

Risk Management The Three Lines Of Defence

The three lines of defence principle is a long and well established concept that has been deployed in a variety of industries and situations.
In the insurance industry the three lines have consisted of the following:
The business  the day-day running of the operation and the front-office
Risk and compliance  the continual monitoring of the business
Audit  the periodic checking of risk and compliance.

In part this approach is the solid foundation upon which firms can protect themselves against a range of potential risks, both internal and external, and to a degree it is an approach that is forced upon them through regulators insistence on external audits as well as on an embedded risk management capability.

As reliable and well proven as the three lines of defence concept is throughout the insurance industry, it is in need of an update. In todays market there is a far greater number of risks and regulations and an ever-increasing level of complexity in business. Simply being sure that every major risk is in hand is a difficult task.

It is not so much the concept of the three lines of defence that needs to be overhauled but the way that these three lines communicate with each other and the relationship between them.

The complexity of todays market affects the risk and compliance function more than any other. In the majority of organisations management of the various different forms of risk  operational risk, compliance risk, legal risk, IT risk  are all carried out by different teams, creating a pattern of risk silos. This situation leads to a number of negative consequences. The first of these concerns efficiency.

These risk silos each gather their information by asking the business to provide various information relating to their daily tasks and any potential risks associated with them. Because of the silo structure, the business will find itself being asked for this same information on a multiple of occasions. This not only leads to inefficiency due to the duplication of effort, it can also lead to frustration from front office staff and subsequent disinclination to engage with risk management.

Such is this level of frustration that, according to one insurer which recently appointed a new chief executive, when the new head asked his staff what single change would make their life easier he was told to do something about the endless questionnaires and check sheets that they have to fill out to satisfy risk managers and compliance officers.

While frustration among staff is never a positive development, any companys risk management programme depends on getting buy-in from the staff so anything that threatens the success of this programme has to be addressed.

Perhaps more importantly there is also an inconsistency due to the different ways this same information will be interpreted by different risk teams. This disparate relationship between risk teams can also lead to a lack of recognition over potential correlations between various risks. For example, the recent sub-prime crisis that has affected so many banks may have been avoided if there had been more co-ordination and communication between the credit department and those selling mortgages to people with bad credit.
Similarly the 6.4 billion loss at Socit Gnrale was the result of several risk oversights, combining a lack of controls on individual traders as well as a failure to implement various checks on the trading systems themselves. There was also a negligence of market risk factors with risk management not highlighting a number of transactions having no clear purpose or economic value.

Major risk events rarely result from one risk and most commonly involve a number of potential exposures all combining. Consequently insurers need to be more joined up in their risk management and more consistent in the way that risk is reported across the organisation.

For those individuals charged with the responsibility for enterprise-wide risk management, their task is made harder by the inconsistent formats that they receive their risk information. For example, interest rate risk may be reported as a single Value at Risk number, whereas regulatory compliance or operational risk may be expressed through a traffic light format. How is a chief risk officer, or indeed a CEO, expected to rank such disparately expressed exposures?

What organisations are now looking to do is to gather all of the various risk information in a consistent format for their chief risk officers to work from. So having a common framework for this process is crucial.
There are various initiatives in the insurance industry  ICAS, Solvency II and, often, the Basel Accord  all of which have contributed to the growth of risk and compliance teams. The chief requirement for all of these regulations is capital adequacy, meaning that insurers have to set aside a calculated reserve of capital to cover a number of potential risk scenarios.

However, regulators will say that they are not simply looking for firms to fulfil their most basic regulatory requirement and to set aside a defined sum of money to cover a list of risk scenarios. Instead they are looking for firms to concentrate on the methodology used to arrive at these numbers, and on ensuring that the risk management process is thoroughly embedded throughout the organisation and scenario analyses bring together risk information from all of the various risk silos.

Scenario analysis is one approach that firms are using to meet their regulatory requirements but effective scenario analysis is very much based on the ability to collate and correlate risk information from all over the organisation.

For the internal audit teams, their primary concern is to be more effective and to ensure that they are not simply repeating the work of the risk and compliance teams and are adding value by rigorously testing this work. Such a task requires access to this information and, ideally, to be using the same common framework as the risk and compliance teams so that information can be seen in the correct context.

We are seeing much greater independence and objectivity in the internal audit role, says Simon Rogerson, head of internal audit at Zurich Financial. In an increasing number of organisations the internal audit function is no longer confined to existing within a corner the finance department and has more direct communication with senior management.

The Role of Technology:
According to Rogerson, the use of technology to facilitate the evolution of the three lines of defence is a new development in the insurance industry. Because it has been hard to clarify the different lines of defence and their relationships, it has been difficult to build a business case for a new system and to build the necessary workflow around these different roles.
The situation is exacerbated by the presence of separate legacy systems in the business, risk and audit departments. Everyone is aware of the weaknesses in their own systems but this knowledge does not always translate across the three lines of defence. This leaves most insurers with two choices. The first is to go back to the start and design a new all-encompassing system from scratch. The second choice is a system that supports common processes and reporting while allowing each function to continue using specialist solutions that suit their own needs.

I think the successful firms will be those that recognise there are different functionalities in these different spaces but they are all able to communicate with each other in a common language and through common systems, says Rogerson. Observations can be shared and specific risk issues can then be discussed through an email exchange and summary reports can be automatically sent out to managers.

For internal auditors a lot of their work is manually-based, says Rogerson. But technology would enable us to do these things quicker and more accurately. The system would also enable us to make certain risk issues generic so that where a risk is identified in one office or department we can then alert all the relevant risk managers in other departments and offices to see if this risk has been recognised and if there are processes in place to manage this risk. By automating this identification of risk, it enables insurers to take a smarter, more efficient and more global approach to the internal audit function.

For risk managers it is about simplifying the process. They have a limited set of resources and want to make as much use of them as possible. In order to achieve this, it often means involving the business in carrying out much of the risk process  controlled risk assessments through recording any losses or the breaches where these losses occur. By conscripting the services of their business colleagues, risk managers are able to concentrate on the value-added side of their work and their role.

There are also some wider benefits to the organisation from such a system and the principle behind it. The more that front-office staff is exposed to the mechanics of the risk management process, rather than being repeatedly petitioned for the same information from multiple parties, the more they are aware of its importance and their role in it.

Decades ago, total quality management was a fashionable concept in many organisations. The frailty of this concept was that in having a dedicated management team in this area, the rest of the business could assume that quality was no longer their problem but someone elses. This same misconception could be applied to risk and compliance, unless the business is kept well-informed of the risk management process and their own role within this process. Therefore it is important to make everyone realise that risk is their problem too.

Proven Approaches To Power Relationship Marketing

It should be a no-brainer for any business to realize that good customer relations and treatment can take a business a long way. Even though all business owners would admit that relationship marketing is important, the apparent fact is that most businesses fail miserably at it. If you aren’t able to keep your customers satisfied then it can get really difficult to grow your business and take to a new level. Today we want to share a few relationship marketing tips that have been proven to work well by other businesses.

You’ll want to begin by looking at your database for your customers, and hopefully you have a solid system in place for that information. No worries if you’re a small business with few customers, or you haven’t been keeping records because you can always start. Now, depending on what kind of business you deal with, the information you have about your customers will differ. The type of information stored is usually related to dates and products or services they bought. If you know their birthday, for example, then you can use that when their birthday comes around. So always remember that it’s a person’s emotions that are most important with buying. If you touch them in a positive and emotional-based way, then that will help them to keep you in mind when it comes to purchases. You’ll be able to cultivate positive emotions and feelings on the part of your customers toward your business. You need to provide additional value and surpass your customers’ expectations. The more you over-deliver to your existing clients, the better returns you will get because they would want to be associated with you. Offer them the appropriate solutions to their issues in a timely fashion and help them as much as you can. You will be able to gain their trust this way which will help your business expand.

Relationship marketing should always matter no matter what stage your business is in, however you can lay a lot of strong foundation if you do it right from the very start. There’s nothing wrong or no drawback when you engage another person in communications. You can always engage in positive relationship marketing at any point, and it’s something that should be done with everyone in your customer base. So it doesn’t matter at what stage you’re at with your business, relationship marketing is the kind of strategy that you can implement even if you’ve never done it before.

It is interesting to note that there’s a non-marketing aspect to relationship marketing. You can think of it in terms of simple human nature and relationships much like you do with a friend. You should always work hard to maintain excellent relations with your existing customers.

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Our Relationship With Money

Money. Each of us has a different relationship with it. We view it differently, use it differently and think about it differently. How we experience money affects our relationships with out partners, families, and friends; and it drives our choices for our careers, environments and activities. Money plays a role in our present and future – often stemming from the beliefs we have that are rooted in the past.

What is your current relationship with money?

What we don’t realize is that it is not about having money or not having it that affects our lives, it is about how the money or lack of it makes us feel, what we believe about it and how we act with it. Whether we feel abundance or scarcity often has nothing to do with our bank accounts. There are many with very little money who have great feelings of abundance in their lives (wealth and abundance has to do with more than just money), and there are also those with great monetary wealth who feel much scarcity in their lives. The word -enough- is often associated with both states. We feel abundant when we have more than -enough- of whatever it is we wanting and scarcity when we have -not enough-. Many of my clients come to me feeling some level of scarcity around money. They say they things like -if only I had enough money, then I would-.- The funny thing is, usually when I ask them to define (quantify) -enough- they are not able to do it. If we don’t know what -enough- is, how do we know whether we have it or not?

What role does money play in your current lifestyle? What role do you want it to play in the lifestyle you want to have?

Recently my husband and I talked about this very topic. We were away for the weekend, floating peacefully on a beautiful lake and we were talking about how much we are grateful for in our lives (the scenery helped). The conversation then turned to what we most want to add to our lives (things, experiences). At the end of that talk, we realized that much of what we want we could have right now, that the cost was not very much at all, yet we hold back in reaching for it. How often does that happen to you – you think that what you want is beyond your reach when really it is far closer than you believe. All you have to do is go for it.

What is it you truly want right now? How close is it? Of course, some of the things we want do cost more money than we currently have or want to spend, but what if there was still a way to have it, for far less money? One way to achieve this is to think about the essence of what you really want or are seeking. For example, if you want to travel the world, perhaps it is experiencing new cultures or tastes or scenery you are seeking; if you want a beach house, maybe it is the care free lifestyle, solitude or playfulness you are really craving. The essence is the why behind what you want. Values can also play an important part in figuring this out. Knowing what matters most to you helps you decide where and how to spend the money you have. For example, if you value learning and growth – you may spend on classes, books, degree programs, certification, coaching; if you value security – you may spend on insurance, a safe car, alarm systems; if you value health – you may spend on acupuncture, nutrition counseling, health clubs and whole foods. My example – I value beauty and creativity therefore I spend on art supplies and an occasional art class and weekends at the beach. I also love shopping so I frequent thrift stores – it connects me with my love of treasure hunting and gives me the ability to say -yes- to everything I want since the price point is low – it’s also great for the environment to reuse – and I’m donating to a good cause at the same time.

What is your WHY – the essence behind what you want in your life?

Another important factor in your future relationship with money is gaining control of it. That includes knowing where it is and how it is working for you – being aware and empowered is a critical abundance-building step. When I met Lori Williams of Wachovia Securities, I had a mishmash of investments that were so confusing I often -ignored- it. Getting everything organized and in one place, with a person whose knowledge I trusted was incredibly freeing. Lori helped me see the big picture of what -enough- means to me and my husband at this time in our lives. This was especially helpful as I had just started my coaching and speaking business and my husband was embarking on a full time music career – making our income unpredictable. This was a big step out of our comfort zones. Working with Lori gives us piece of mind. In her we have someone with the skills and knowledge we lack supporting us in maintaining the lifestyle we want to live.

What support do you have in your relationship with money?

It is now time to think about your future. You get to decide the role you would like money to play in achieving your life goals. It is also you who chooses how you will spend your money and what you will save it for. In order to spend in the areas you value, you can look at your overall money picture in several ways: by focusing on where you are spending now in areas you don’t highly value, how much you are spending in areas you do value, and uncovering the essence of what you want to shift how/where spending now. This is also a great time to find support, in a financial planner or a life coach (or both) so you can create and life your -best life- – it may be within your reach right now and you don’t even know it.

This entry was posted on July 7, 2015, in Business and tagged .

Network Marketing 7 Common Mistakes To Avoid When Building A Successful Home Based Business

If the network marketing business is so good then why 90 percent of the people see the opportunity but fail in it? The business idea of building a large organization is so simple yet not easy to accomplish.

In this article, we look at the 7 common mistakes to avoid when building a successful home based business.

1) I must find the Super Salesman / I must become the Super Salesman.
Many of us view the MLM business as a numbers game but a successful network marketing business builder looks at both quantity and quality of people. There is no doubt that sponsoring is the foundation of building a large organization. However, as concerned as we are about the numbers in our team, we would rather be sponsoring five teachers than five salesmen.

You see, we are not dismissing the fact that salesmen can be a great asset to your team. Sure, the salesman will automatically do very well in selling the high quality products your company offers. They are able to put together their own presentation and sell effectively to people around them.

However, we do not want to tell our people how to sell, we want to teach our people how to sponsor and teach to build a large organization. Likewise, if you are a sales person yourself or you have people who are sales oriented in your network marketing team, teach them how to sponsor and teach to build a sustainable organization.

It can be difficult because if for example, you tell your super salesman that you need to sponsor people to make the larger amounts of income, what will they do? They will go out there and sponsor 3 to 4 people a week. This is great isn’t it? However, you may then notice that people are dropping out as fast as they join your team. This is because you are not working with them effectively. Sooner or later, your super salesman will be discouraged by the high leaving rate and leave the organization as well.

In order to avoid this, our organization has to be built on the strong foundation by TEACHING OTHERS to sponsor and teaching them to teach others to do the same.

2) I need to sponsor the whole world to be successful.
The Super Salesman can sponsor 100 people in a short period of time but most (or sometimes all) of them will drop out of the business. Now, which do you feel you could do more quickly — sponsor 100 people yourself? Or sponsor 5 people who are serious and teach them how to teach their 5 to do the same?

The network marketing business concept works on the idea of LEVERAGE. There is absolutely no need to sponsor the whole world to be successful. Concentrate on working with five in your team and teach them also to work with their five and so on.

3) I only need to bring in one other person.
Most people think that you have duplicated yourself once you brought one other person into your organization. This is NOT true. The concept of true duplication only comes about when you have built your organization THREE LEVELS DEEP.

Take the example you sponsor ‘A’. If you leave and because you did not teach ‘A’ and he does not know what to do, that’s the end it. On the contrary, if you DO teach ‘A’ to sponsor ‘B’, ‘A’ will know what to do even if you go away from the organization. However, if ‘A’ does not know how to teach ‘B’ to sponsor, then again the structure will collapse and that’s the end of it too.

Therefore, in a team, it is imperative to teach ‘A’ how to teach ‘B’ how to sponsor ‘C’. Now, you are THREE DEEP and have successfully duplicated yourself. And the same goes for ‘A’, he or she has to build three levels deep as well to keep your team sustainable.