Measuring and Managing Operational Risk

Agenda Program
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Prague, NH Hotel Prague
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Sound Practices for Managing Operational Risk
Operational Risk Events
The Basic Indicator and Standardized Approaches
The AMA Approach
Scorecards and Principal Agent Analysis
Key-Risk indicators and Self-Assessment
Monte Carlo Simulation and Loss Distributions
Financing and Transferring OP Risk
Economic Capital Allocation
The purpose of this seminar is to give you a thorough introduction to operational risk and a good and practical understanding of how the various types of operational risk can be measured and managed.

We will start with an overall definition of "Operational Risk" and will discuss why this type of risk is becoming a more important issue.

We will then take a closer look at the various types of risks that are categorized as operational risks, including people risk (fraud, unauthorized trading, mistakes), technology risk (including settlement risk), legal risk (i.e. when using swaps or credit derivatives), model risk, and accounting and tax risks.

Next, we will explain how operational risk can be quantified using "Basic Indicators", "Betas", "Value Chain Analysis", "Principal-Agent Analysis" and more sophisticated, statistical techniques. We will also explain how measures for operational risk are brought into the calculation of risk capital and how capital is allocated optimally across business units.

After that, we will explain the role of operational risk in Basel III. We will explain how operational risk is quantified according to the proposal, and we will illustrate the possible impact on the capital ratios of banks. We will give illustrative examples of the "Basic Indicator Approach", the "Standardized Approach" and the "Advanced Measurement Approach" (AMA).

Finally, we will present and discuss possible ways of managing operational risk, including "Business Process Reengineering", using insurance, incentives, and sophisticated derivatives and structured products with "embedded" insurance features. We also discuss how operational risk management can be integrated into a comprehensive "Enterprise Risk Management" framework and how you can establish a disciplined process to lay the foundation for a good risk management culture and to produce the most reliable results.

Program of the seminar: Measuring and Managing Operational Risk

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction to Operational Risk

  • What is “Operational Risk“?
  • How Operational Risk Integrates with other Risk Types
  • Basel Definition of Operational Risk
  • Regulatory Treatment of Operational Risk

Closer Look at Operational Risk Events

  • Overview of Types of Operational Risk
  • Internal Fraud
  • External Fraud
  • Employment Practices and Workplace Safety
  • Clients, Products and Business Practices
    • Legal risk
    • The impact of MiFID
  • Damage to Physical Assets
  • Business Disruption and System Failures
  • Execution, Delivery and Process Management
    • Settlement risk
  • Landmark Operational Risk Cases
    • Barings, BCCI, WTC 9/11, Allied Irish, KfW, SG, UBS,…

12.00 - 13.00 Lunch

13.00 - 16.30 Quantifying Operational Risk

  • Overview of Approaches to Measuring Operational Risk
    • Bottom-up and top-down methods
    • Risk profiling
    • Value chain analysis
    • Scorecard approaches
    • Principal-agent analysis
  • Basic Indicator Approach (Basel)
    • Exposure indicator (EI)
    • The “alpha” factor
    • Example of calculating capital charge
    • Advantages/disadvantages of the BIA
  • The Standardized Approach (Basel)
    • Minimum standards for using the standardized approach
    • Business lines and business line mapping
    • The “beta” factors
    • Example of calculating capital charge
    • Advantages/disadvantages of the SA
  • Case: Using Basic Indicator/Standardized Approach in “Small Bank”
  • Small Exercises

09.00 - 09.15 Brief recap

09.15 - 12.00 Quantifying Operational Risk (2)

  • Advanced Measurement Approach (Basel)
    • Characteristics and components of AMA
    • Minimum requirements for using AMA
    • Challenges and benefits of the AMA
  • Quantifying Risk Using the AMA
    • Operational loss data
    • Building the OP risk database
    • Quantification methodologies
      • Loss Distribution Approach (LDA)
      • Value-at-Risk
      • Using Monte Carlo simulation
    • Qualitative risk assessment and key risk indicators
      • Scorecards and early warning systems
      • Self-assessment programs
    • Adjustment for Quality of Current Control Environment
  • Required Disclosures under the AMA
  • Summary: Comparing the Possible Impacts of Different Measurement Approaches
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Managing Operational Risk

  • Sound Practices for Managing Operational Risk (Basel)
    • Developing an appropriate risk management environment
    • Identification, assessment, monitoring and Control/mitigation
  • Establishing a Disciplined Process
    • Laying the foundation for a good risk management culture
    • Establishing a process that will produce the most reliable results
    • Turning raw operational risk data into information that supports managerial decision making
  • Risk Mitigation Techniques
    • Risk avoidance and factor management
    • Loss prevention
    • Loss control and contingency management
    • Managing Controls through Cost Benefit Analysis
    • Risk financing (insurance , hedging, risk transfer)
    • OP derivatives and “Act-of-God” instruments
  • Managing Operational Risk under Pillar 2 in the Basel III Framework
    • Building an operational risk management systems
    • Developing an enterprise-wide “Risk Culture”
    • Economic capital allocation

Summary, Evaluation and Termination of the Seminar

Training catalogue in PDF
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