Although arguably all of our efforts are or will be geared toward mitigating or optimizing risk, there are several strategies that will be identified as providing an overall framework for risk mitigation efforts firmwide. We refer to these as the risk mitigation framing strategies. They consist of strategies that must emanate from the corporate organization in support, reinforcement, and scrutiny of the business unit efforts.

Use incentives and disincentive systems as a means to balance strategic risk and reward. For instance, use risk-adjusted performance measures (RAPM), such as risk-based economic capital allocation or attribution processes, to highlight operational risk intensive businesses. Provide both incentives and disincentives for management of risk. Use capital as a means to optimize risk and reward.

Far too often, risk management only focuses on negatives, and this risk managers fall in the trap of penalizing staff and units for risks identified, poor performance, and loss results. The most effective programs balance this with a system of rewards for productive risk management behavior and investment by both business and corporate units and staff alike. Some examples might include reduction of risk through upgrades in systems or manual processes, enhanced issue tracking systems and timely clearance of self-identified risk issues or issues identified by Internal Audit.

Focus attention beyond organizational units to individual behavior. Build operational risk considerations into incentive-based compensation plans (e.g. bonuses, stock options, deferred compensation) in order to assure that staff members are focused on mitigating and optimizing operational risk on a day-to-day basis.

Develop a program of benchmarking and goal setting to track progress on a consistent basis over time and relative to peers on a unit-by-unit basis and firm-wide (e.g. peer comparisons, incident and loss results over time, cost-of-operational risk analyses and reporting).