Course Outline:
Introduction to Operational Risk
- Objectives
- Defining operational risk
- Significance of operational risk
- Operational risk management programs
- Addressing operational risk
- Measuring and modeling operational risk
Basic Concepts
- Objectives
- Loss events
- Risk Factors, loss types and event/ factor controllability
- Dependencies between Risk Factors and Events
- Attribution of Loss
Regulatory Treatment of Operational Risk under Basel-II
- Objectives
- Introduction, Definitions and data issues
- Measurement Methodologies
- Role of Pillars 2 and 3
- Sound Practices
Operational Risk in Various Banking Sectors
- Objectives
- Introduction and Spectrum of Risks
- Accounting policies, costing and pricing models
- Private banking sector
Operational Risk in insurance
- Objectives
- Introduction
- Risks exclusive to insurance and Regulatory Issues
- Alternative Risk Transfer and Finite Risk Captives
- Captives
Developing objectives and identifying risks
- Objectives
- Risk Management Agenda
- Risk Management Targets
- Risk Management Organization and Policies
- Benchmarking Internal Processes and Resources
- Identifying Process and Resource Risks
- Identifying Risk Factors
- Identifying and Categorizing Loss Events
Estimating potential losses – Data
- Objectives
- Challenges to Operational Risk analysis
- General measurement techniques
- Historical analysis
- Subjective risk assessment
Estimating potential losses – Loss distributions
- Objectives
- Overview of probability distributions
- Building a distribution
- Probability distributions
- Estimating risk factors
- Choosing an event distribution
- Operational Risk database
Analyzing risks
- Objectives
- Aggregating risks
- Monte Carlo loss simulation
- Risk management alternatives
- Analyzing loss events
- Analyzing risky processes and resources
- Analyzing risk factors
Loss prediction and prevention
- Objectives
- Loss prediction
- Loss prevention
- Process reengineering and work restructuring
- Product redesign and automation
- Human factors engineering
- ERP and reliability maintenance
Loss control
- Objectives
- Introduction
- Diagnostic controls and Inventory management
- Redundant systems and boundary systems
- Computer security and physical security management
- Internal and external audit
Loss reduction and risk avoidance
- Objectives
- Legal risk reduction and loss isolation
- Contingency Planning
- Crisis Management
- Risk avoidance
- Quality management
- Human resources management
- Organizational design, Culture and relationship management
Risk financing
- Objectives
- Introduction
- Financial restructuring
- Asset-Liability Management
- Corporate diversification
- Insurance
- Self-Insurance
- Hedging using derivatives
- Contractual risk transfer
Measurement framework
- Objectives
- ORM cycle
- Framework criteria and assumptions
- Current framework approaches
- Measurement process for ORM
- Delta and EVT methodologies
ORM in practice
- Objectives
- Learning and response loops
- Guidelines for effective reporting
- Event reports and Operational profiles
- Risk reports
- Evaluating and updating the risk model
- Implementing bank-wide ORM
Enterprise-wide Risk Management (ERM)
- Objectives
- Role of technology
- Enterprise-wide risk information systems
- Challenges to ERM
- Project Management for an ERM system
Basic and causal models
- Objectives
- Operational Risk Management (ORM) model
- Top-down risk models
- Bottom-up risk models
- Selecting a risk model
- Causal models
Legal risk and taxation rules
- Objectives
- Introduction
- Contract enforcement
- Board of directors and shareholder activism
- Management responsibility for legal risk
- Transparency and collateral
- Shifting ground in international taxation
E-banking
- Objectives
- Introduction
- Operational risks associated with Electronic Banking
- Security risk
- Systems design, implementation, and maintenance flaws
- Customer misuse of products and services
Systems and software
- Objectives
- Introduction
- Framework/Components of an operational risk system
- Operational risk software
- AMELIA
- MICROBANK
- Relex software
- ALGORITHMICS
Case study Barings
- Objectives
- Overview
- How the massive losses were incurred
- Lessons to be drawn from the incident
