“Risk as a service” helps foster a mindset of innovation

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In a previous blog post, I wrote about the mindset of innovation which is so important to the work we do at the ABN AMRO Innovation Centre. It involves making decisions based on facts, not assumptions. That starts with adopting a new methodology which is all about experimentation, learning and working as part of multidisciplinary teams applying the principles of design thinking, lean startup and agile. We’ve now joined forces with many other ABN AMRO departments and external partners to promote innovation. In this post, I’d like to elaborate on one of these collaborations. A year ago, we jointly launched an innovation pathway with the Risk Management Department to see how we could process our clients’ loan applications better and faster in the short term. In the longer term, we’re hoping to determine what options are open to the bank to provide “risk as a service” (RAAS), making its risk management models and processes commercially available as a new service.

Innovation has become an important part of our day-to-day activities at Risk Management. Maaike Gordijn Maaike Gordijn Manager Small Business & Retail Lending

A proactive team

We kicked off the process by choosing the team. Staff were given the chance to apply, and we selected the best candidates after conducting short interviews. We decided to go with a small, multidisciplinary team that devotes all its energy to innovation full-time, working from its own location at the heart of the bank. Getting just the right mix was crucial. Team members obviously needed the right expertise, but we also looked closely at character traits like intrinsic motivation, determination and drive, an enquiring mind and a can-do attitude. Basically, we were looking for a proactive, resourceful group of people.

Support and responsibility

To better ensure that an innovation pathway is likely to succeed, it’s important that the team can devote all its energy to innovation, and that all the members feel they have the full support of the organisation behind them. A so-called business sponsor sets out how a particular situation should look in the future. It’s then entirely up to the team how that scenario is achieved. They’re given all the support they need, but also bear full responsibility for the project – from mapping out what the client’s needs are to developing a solution, IT-based or otherwise. All the business sponsor does is set the parameters.

One person is appointed to remove any obstacles the team encounters so they can focus solely on experimentation and trial and error. The Experiment Lead coaches the team, teaching them how to apply the innovation methodology.

Using data to complement the current approach

ABN AMRO has years of experience in risk management, so it makes sense that our risk managers’ models are tried and tested. That’s why we were excited to realise that our experiment could actually further improve the assessment process.

Interviews with relationship managers, risk managers, clients and experts in various areas have shown that each sector uses key performance indicators (KPIs) to achieve success. One KPI in the car sector, for example, is the number of inventory days for second-hand cars.

It soon became clear that the data these KPIs assess are a valuable addition to the methodology currently employed by the risk manager. By adding sector-specific KPIs to the assessment strategy, the risk manager is more objective and can make more predictive assessments. As a result, the quality of risk assessments is even better overall.

Displaying data

The next step involved displaying the data used to measure a given KPI. These KPIs, now enhanced with data, are included on a dashboard to give the bank’s risk managers an up-to-date, objective picture. While still in the prototype stage, the dashboard was tested, loaded and improved. This exercise taught us that some KPIs are such strong indicators that they may, to some degree, be predictive of the performance of certain companies in the future. It was thanks to these KPIs that our very first forward-looking dashboards were created. These tools now allow us to predict with a high degree of probability vacancy rates looking six months ahead for individual office properties throughout the Netherlands, for example.

What now?

Having completed this pathway allowing us to process our clients’ loan applications better and faster in the short term, we’ll now be looking further into the future and developing initiatives to create new business models. “Risk as a service” is all about how we at the bank will be packaging our risk-related knowledge and expertise as a product. To get there, we plan to launch a number of small-scale experiments that will help inform the approach we take.

RAAS is more than a pretty dashboard

Innovation has become an important part of our day-to-day activities at Risk Management. The ideal climate for encouraging innovation is one in which we work in short sprints, and as part of multidisciplinary teams, to define a clear, innovative objective (e.g. “make risk assessments faster and more objective”) rather than on isolated tasks (e.g. “build a dashboard”). Obviously, this experiment has resulted in much more than just a pretty dashboard, and we’ve learned an enormous amount from it – for instance, that both credit analysis and data analysis will be essential skills for risk managers once they’re using the dashboards every day on the job. We’ve also discovered that multidisciplinary collaboration with data specialists, IT officers and risk managers accelerates output.

Here are the three key takeaways from the innovation pathway:

  1. Surround yourself with the right people;
  2. Combine current methodology with the power of data;
  3. Structure your organisation on this modified approach.

Partly as a result of the risk management innovation pathway, we’re seeing that more and more of our colleagues at the bank have been inspired to embrace innovation and that innovative initiatives are on the rise right across the organisation. The mindset of innovation has been unleashed!

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