Design of an Operational Risk Management System Project Example

Financial DMADV project manages reduces operational risk by $6.4 million annually

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Great Lakes Finance Company (GLF), a small Michigan-based retail and commercial lender, experienced several severe operational risk losses.

These events, combined with recent actions by the U.S. Federal Reserve ("Fed") to define criteria and requirements for measuring and managing operational risk, highlighted the need for GLF to overhaul its current risk management system.

The motivation for improvement was clear: Lower risk results in better lending rates, which leads to higher margins or greater market share.

The Six Sigma team tackling this problem redesigned GLF's operational risk measurement system and integrated the methods into GLF's existing Enterprise Risk Management (ERM) system.

As a result of this Design for Six Sigma (DMADV) project, no major loss events occurred in the five months following the project.

Annual savings from reduction of all loss events were estimated to be $6.4 million.

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