Whitepaper
Lessons from the Cheesecake Factory:
A Recipe for Successful Risk Management?
By Amy Fields, Senior Consultant, Wolters Kluwer Financial Services
When eating out at a chain restaurant, food consistency is important. Restaurant patrons know what their favorite meal
tastes like and expect a consistent product—whether they are dining on the east coast, the west coast or somewhere in
between. But, have you ever taken a moment to think about all of the processes and procedures a chain restaurant must
have in place in order to deliver the exact same meal to the table no matter what the geographical location?
In an August 13, 2012, article in The New Yorker, Dr. Atul Gawande, a professor of public health at Harvard, examined how
the Cheesecake Factory consistently and efficiently implemented an updated menu twice a year in all of its restaurant
chains without sacrificing quality or disrupting service. Impressed with the Cheesecake Factory’s effective distribution of
information to its many restaurants, Dr. Gawande wondered if a similar business model might successfully be applied to
the health care industry. Using the Cheesecake Factory’s process for information distribution and quality control, could the
medical industry operate more efficiently and provide better service while simultaneously offering higher quality care?
Dr. Gawande’s article makes a compelling argument on the importance of good communication and standardization within
an organization. As he points out, good ideas take an “appallingly” long time to trickle down in the medical field while the
Cheesecake Factory can communicate new menu items and achieve consistent results in every chain within seven weeks.
And, if the health care industry could benefit from the same business principles that drive the Cheesecake Factory’s
success, couldn’t they also be applied to other industries as well? In this white paper, we will explore how financial
institutions might implement a similar model to help manage regulatory risk and compliance within their organizations.
Lessons from the Cheesecake Factory
A Recipe for Success
Today’s business world is constantly changing. And, for
the financial services industry, things are growing more
complex everyday. However, like the Cheesecake Factory, the
financial institutions that are successful are those that have
implemented consistent processes and standards across the
entire organization, effectively communicated this information
throughout all levels, and perform ongoing monitoring for
effectiveness.
In fact, the most successful financial institutions, health care
professionals and chain restaurants all have one thing in
common—they have established information distribution
and quality control models that enable them to keep their
organizations running smoothly with little or no disruption to
service.
As Gawande learned at the Cheesecake Factory, kitchen staff
use computer monitors with touch-screen tabs for the recipe
(ingredients as well as step-by-step instructions) for each
menu item and a photo showing the proper presentation. This
streamlined process ensures that each dish is prepared and
presented in the same way from chain to chain.
While there is no exact recipe for a financial institution’s
enterprise risk management (ERM) program, and some may
even argue that the Cheesecake Factory model is an overly
simplistic view for an industry still reeling from the 2008
financial crisis, it is worth a closer look to see if some of the
principles that contribute to the Cheesecake Factory’s success
could benefit banking operations as well.
Key Steps in the ERM Process
To address unknown risks, financial institutions must adopt
a systematic approach to emerging risk identification,
assessment, monitoring and reporting. Following a consistent
and transparent approach to managing risk can prevent
unexpected and detrimental events from occurring and enable
financial institutions to pinpoint areas of opportunity.
Step 1: Risk Identification
Financial institutions can better protect themselves and even
further their business strategies and objectives by approaching
risk management in a very disciplined way. For example, at
every Cheesecake Factory restaurant, a kitchen manager is
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stationed at the counter where the food comes off the line. In
an effort to eliminate the risk of a dissatisfied customer, the
kitchen manager inspects every dish before it leaves the kitchen
to identify whether the dish meets the restaurant’s standards
or needs to be redone.
Much like the kitchen manager, a financial institution’s risk
manager must understand and identify potential risks not only
for each business line, but also at a very high level throughout
the organization as a whole. The risk manager can then
combine the relevant data to create a true picture of what the
financial institution’s complete risk picture looks like overall.
By looking at risk from an enterprise view the risk manager
can create a systematic approach across the organization that
creates more efficient operational processes which ultimately
translate into a consistent and satisfying customer experience.
Step 2: Risk Assessment
At each restaurant, the kitchen manager rates the food on
the line using a scale of one-to-ten. A nine is nearly perfect.
An eight requires one or two corrections before going out to a
customer. A seven needs three corrections. And any menu item
rated a six or less is unacceptable and has to be redone.
Similarly, financial institutions should implement ongoing
risk assessments to measure and evaluate the impact of risk
occurrence to the institution. While it is common for financial
institutions to face a variety of risks, it is important to gather
a manageable list of what are collectively seen as the most
significant risks. Once the risks are identified, they can be
scored, and then prioritized based on their significance. This
process creates consistency and transparency across the
organization. Resources and action plans should be focused
around the risks with the greatest impact to the institution
or the consumer, while the other less concerning risks should
continue to be monitored.
Step 3: Risk Monitoring
At the Cheesecake Factory, the kitchen manager notes
everything—from grill marks on the meat to whether
the garnish is ample without being excessive. These food
inspections help coach staff to aim for a “ten” and provide
customers with a consistent product.
A Recipe for Successful Risk Management
Financial institutions should coach their business line managers
on how to understand and monitor their risk profiles. Risk
monitoring protocols should be consistent and scheduled on
a regular basis, so that risks can be reviewed and re-prioritized
and controls can be tested and tweaked. Monitoring regulatory
change is important in order to understand how new laws and
requirements might impact risks and controls within the ERM
program. This is necessary so that the impact can be assessed
before the change affects the quality of the institution’s
product and customer experience.
Step 4: Risk Reporting
As effective, efficient communication is a key factor in the
Cheesecake Factory’s ability to implement new menu items
quickly and consistently, ERM programs also need a robust
reporting and communication system. The reporting of
risks, controls and prioritization of results are typically made
to multiple levels of management, with risk information
specifically tailored to each group.
management that is more effectively communicated across the
financial institution.
Ms. Fields has worked in the Financial Services Industry since
2004 and is now advising clients on their risk management
program design. She provides best practices advice on a broad
range of compliance and operational risk, including, but not
limited to developing operational risk management frameworks,
creating risk and control self-assessments, and conducting
scenario analysis. Ms. Fields works with clients to create a
multi-faceted risk management program aligned with emerging
industry developments, including creating risks and controls,
drafting policies and procedures, and conducting audit testing.
For additional information on risk management consulting
services, visit the Wolters Kluwer website.
With all of the information at hand, and having complete
transparency, knowing the full range of risks the financial
institution faces as well as the controls at its disposal, the
organization can begin to use the risk data to implement
practical and strategic business decisions. This process,
operated in a consistent manner, yields the results expected of
an ERM program.
Lessons Learned
While some might argue about the effectiveness of applying
the business model from a chain restaurant to the financial
services industry, there are key lessons to be learned from any
organization that demonstrates a competency for quality.
Whether it is hospitals, restaurants or financial institutions, all
organizations can benefit from having standardized procedures
and guidelines in place; operating in a transparent and
consistent manner and with strong management oversight.
For financial institutions, the end result is a strong risk
management culture that will encourage innovation in business
lines without exposing an organization to the kinds of risks that
exceed the tolerance for the institution. Carefully considering
how information is actually managed and distributed
throughout an organization will lead to more intelligent risk
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About Wolters Kluwer Financial Services
Whether complying with regulatory requirements, addressing a single key risk, or working toward a holistic risk management strategy, more than 15,000 customers worldwide count on Wolters Kluwer Financial Services for a comprehensive
and dynamic view of risk management and compliance. Wolters Kluwer Financial Services provides audit, risk and compliance solutions that help financial organizations improve efficiency and effectiveness across their enterprise. With more
than 30 offices in 20 countries, the company’s prominent brands include: FRSGlobal, FinArch, ARC Logics for Financial
Services, Bankers Systems, VMP® Mortgage Solutions, AppOne®, GainsKeeper®, Capital Changes, NILS, AuthenticWeb™
and Uniform Forms™. Wolters Kluwer Financial Services is part of Wolters Kluwer, a leading global information services
and solutions provider with annual revenues of (2011) €3.4 billion ($4.7 billion) and approximately 19,000 employees
worldwide. Please visit our website for more information.
Wolters Kluwer Financial Services
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Waltham, MA 02453
Phone: 781.907.6689
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