Improving Operational Risk Management

Operational risk is possibly the largest threat to financial institutions. The operational risk that financial institutions face has become more complex, more potentially devastating and more difficult to anticipate. Moreover, operational risk management is an essential part of the economic activities and economic development in financial institutions. The credit crunch indicates once more that operational risk does not lend itself to traditional risk management approaches. This is because almost all instances of operational risk losses result from complex and nonlinear interactions among risk and business processes. In this book, the focus is on an alternative to the existing efforts: to improve operational risk management that is more effective, efficient and satisfying. A highly structured approach for operational risk management is prescribed and explained in this book. The approach can operate with scarce loss data and enables financial institutions to understand operational risk with a view to reducing it, thus reducing economic capital within the Basel II regulations. IOS Press is an international science, technical and medical publisher of high-quality books for academics, scientists, and professionals in all fields. Some of the areas we publish in: -Biomedicine -Oncology -Artificial intelligence -Databases and information systems -Maritime engineering -Nanotechnology -Geoengineering -All aspects of physics -E-governance -E-commerce -The knowledge economy -Urban studies -Arms control -Understanding and responding to terrorism -Medical informatics -Computer Sciences Title Page......Page 2 Table of contents......Page 8 Preface and Acknowledgements......Page 12 List of abbreviations......Page 14 Introduction......Page 16 Importance of operational risk management......Page 18 Benefits of operational risk management......Page 20 Difficulties with loss data......Page 21 Difficulties with expert judgment......Page 22 Difficulties with techniques, technology and software tools......Page 24 Research objective......Page 25 Research motivation and questions......Page 26 Research strategy......Page 27 Case studies and action research......Page 30 Research design......Page 31 Research outline......Page 34 Defining operational risk......Page 36 Dimensions of operational risk......Page 39 Management of operational risk......Page 43 Expert judgment......Page 46 Preparation......Page 47 Risk identification......Page 50 Risk assessment......Page 51 Risk mitigation......Page 53 Group support systems......Page 54 Patterns of group tasks......Page 55 GSS support capabilities......Page 58 GSS benefits and aspects......Page 59 Conclusions......Page 64 Bank Insure......Page 66 Work process......Page 68 Risk identification, assessment and mitigation phase......Page 69 Support......Page 70 Expert estimations......Page 71 Problems......Page 72 Starting points for improvement......Page 73 Multiple Expert Elicitation and Assessment......Page 76 View on operational risk management......Page 77 Nature of the design problem......Page 79 Design guidelines......Page 80 Understanding phase......Page 85 Design phase......Page 87 Way of modeling......Page 98 Way of controlling......Page 99 Evaluation of MEEA......Page 100 Method of analysis......Page 101 Understanding Ace Insure......Page 106 Designing ORM processes for Ace Insure......Page 110 Results and discussion......Page 123 Way of thinking......Page 142 Way of working......Page 143 Way of controlling......Page 145 Understanding Inter Insure......Page 146 Designing ORM processes for Inter Insure......Page 153 Results and discussion......Page 163 Way of thinking......Page 180 Way of working......Page 181 Way of controlling......Page 183 Research question one......Page 184 Research question two......Page 186 Research question three......Page 189 Research question four......Page 192 Application domain......Page 193 Research approach......Page 194 Future research......Page 195 References......Page 196 Summary......Page 218 Samenvatting......Page 228 Curriculum vitae......Page 238 Operational risk is possibly the largest threat to financial institutions. In this book, the focus is on an alternative to the existing efforts: to improve operational risk management that is more effective, efficient and satisfying. It prescribes and explains a highly structured approach for operational risk management. Issues in operational risk management Research approach Literature review Operational risk management in practice Multiple expert elicitation and assessment Empirical testing of MEEA at Ace Insure Empirical testing of MEEA at Inter Insure Epilogue.