Financial supply chain risk in Australian financial institutions
Creators: name: Abdallah, Ibrahim
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 350903
subject: Logistics

description: The management of financial supply chain risks (FSCR) in financial institutions is important for their performance. FSCR are defined as financial institution risk effects viewed from a supply chain perspective that constrain attainment of institutional objectives. With limited research on FSCR in the context of financial institutions, the literature identifies a need for holistic research that advances understanding of how risk factors operate jointly rather than in isolation. To contribute to addressing these issues, this research examines FSCR in Australian financial institutions. A conceptual model of FSCR was developed and the research used the thinking process (TP) of the theory of constraints (TOC). The methods of TP, such as the current reality tree (CRT) and the future reality tree (FRT), are employed respectively to investigate the existing situation and to propose alternatives. These methods can accommodate the examination of multiple FSCR factors jointly from the perspective of an organisation in its entirety. The case study participants comprised nine senior risk management participants, three from each of three Australian financial institutions. The institutions represented each of three Australian deposit-taking capitalisation tiers: large, medium and small. <br><br>The current state of financial institution risk causation was depicted in CRT maps aggregated from the three cases. CRTs mapped the most influential core effects contributing to risk. The results showed that the most influential risk core effect types comprised people-centred failures, external service provider disruptions, policy and regulatory compliance limitations, and technology hub failures. The results also showed the causal risk pathways arising from these effects as risk moved dynamically among the operational level, business strategy level and corporate strategy level of the financial institutions and across the major business types, comprising retail financial services, wholesale and business financial services, product management and enterprise information technology services and management. <br><br>The TP FRT method was applied to depict a desired future, with a comprehensive range of complementary risk management system initiatives modelled. This was to simulate the conversion of the current state undesired effects (UDEs) identified in the CRT analysis into desired effects (DEs). This comprised an interconnected system of risk controls, including an enterprise network of risk monitoring, risk assessment and analysis, and mitigation solutions. A finding was that effectiveness was dependent on the strength of interconnectedness of the risk control elements across the organisation in its entirety.<br><br>This research showed that an entire organisation perspective provided by the application of TP methods to Australian financial institutions has both theoretical and practical implications. The theoretical implications are that TP methods used in this research facilitate a comprehensive examination of financial institution risk from a supply chain perceptive that encompasses an entire organisational view. First, multiple risks were jointly identified and mapped together to provide an entire organisational view. Second, the relative importance of the risks for explaining business disruption was evaluated. Third, the interrelationships among the risks and the pathways of risk movement through the institutions were identified and the interconnected nature of risk processes demonstrated. The application of TP methods to FSCR in this research contributed to the better understanding of the nature of risk in financial institutions. A theoretical implication is that rather than portraying risk as arising from a discrete subset of variables and manifesting in isolation, the results revealed the complexity of supply chain risk determinism in Australian financial institutions, such that risk causal pathways were found to be interconnected and crossed over organisational functions and structures.<br> <br>Informed by this comprehensive examination of risk from a perspective that encompasses the entire organisation, the dependencies among risk management phases and approaches that were demonstrated also contributes to a better understanding of interconnectedness among risk factors relevant to the consideration of risk mitigation effectiveness. The FRT analyses illustrated the practical contribution of the results, where applied risk controls simulated the effectiveness of risk mitigation. In practice, the risk mitigation implementation approach is recommended to be highly interconnected and comprehensively managed as an interacting system of risk controls. The research was a novel application of TP methods from a supply chain perspective to examine risk and risk mitigation in Australian financial institutions. A limitation of the research is qualified generalisability to other financial institutions, especially those with different service mixes. Also, international generalisability may be limited by the Australian context because of regulatory environment differences.