Episode 26: Why Strategy and Risk Are Two Sides of the Same Coin

In this episode of the Risk Intel podcast, host Ed Vincent sits down with Niki White, Chief Growth Officer at Strategic Risk Associates (SRA), to unravel the relationship between strategy and risk in the banking industry. Join us as we explore how these two critical elements are essentially two sides of the same coin, and why they must work hand in hand to drive success.

Understanding the Nexus of Strategy and Risk

Niki White, with her extensive experience as a former risk officer and audit officer in a bank, provides invaluable insights into this relationship between strategy and risk. She begins by shedding light on how, depending on the time of year and the specific stage of a strategic plan, banks find themselves grappling with the challenge of incorporating risk into their strategies. In some cases, strategic goals might be curtailed by unforeseen risk factors lurking beneath the surface.

The Risks That Shape Your Strategy

One of the key takeaways from this conversation is the necessity of having an integrated risk management approach. When various departments within a financial institution report and measure risks separately, it becomes difficult to gain a holistic view. As a result, banks may struggle to determine whether they can successfully execute their strategic plans or if they're held back by elevated risks in certain areas.

Practical Examples

Niki provides some practical examples of how risk can significantly impact a bank's strategy. For instance, if an institution aims for aggressive loan growth but lacks the necessary capital, strategic adjustments might be required. This could involve raising capital, refining pricing models, or focusing on risk management to achieve the desired goals. Similarly, regulatory policies, such as concentration limits, can play a pivotal role in determining a bank's ability to align its growth with its strategic plan.

The Intricate Web of Interconnected Risks

Strategic risk, liquidity risk, credit risk, interest rate risk – these are just a few of the factors that institutions must consider when shaping their strategic plans. The conversation underscores how these different risk factors intertwine and influence an institution's strategic management approach.

Sequencing and Collaboration

Niki emphasizes that setting risk appetite and updating the strategic plan should occur simultaneously. These activities should be closely associated with policy limits and should be conducted collaboratively across all departments. It's not a one-time event but an ongoing process that necessitates consistent monitoring throughout the year.

Strategic Planning is not a one and done activity- It's not even a one quarter focus. So regardless of where you are in the year, risk and performance should be measured and monitored together throughout the entire year. - Niki White, Chief Growth Officer‍

A Collaborative Approach to Success

In the world of banking, Niki stresses the importance of collaboration across departments to align risk appetite, strategic plans, and policy limits. These elements should work in harmony to effectively manage strategy and risk within an institution.

In conclusion, Niki White's insights on the integration of strategy and risk management in the banking sector highlight a critical need for financial institutions to consider risk in their strategic planning process. By adopting a coordinated and integrated approach, banks can navigate the intricate interplay of risks and strategies to achieve success in a highly dynamic and regulated industry.

If you're eager to delve deeper into this intriguing subject or have specific questions about how strategy and risk intersect in the banking world, feel free to reach out to Niki and her team at Strategic Risk Associates. Their door is always open to those seeking to uncover the secrets of strategic success in banking.