The conceptualisation of operational risk management models

Operational risk is evolving as a specialist field of risk management that must be practiced within all organisations, but currently has a particular relevance to banks. The Basel Committee on Banking Supervision has circulated a consultative paper which, if adopted by nation-state bank supervisors, will impose an operational risk capital charge on banks as part of a new Capital Accord. The definition of operational risk is wide-ranging and creates some unique issues related to the development of appropriate risk management models. This paper conceptualises two distinct operational risk management models; being a predictive model that will result in a known outcome upon its implementation, and a pre-emptive operational risk management model which prepares an organisation in the event that a future risk occurrence results in a disruption to critical business operations.

The conceptualisation of operational risk management models

Operational risk is evolving as a specialist field of risk management that must be practiced within all organisations, but currently has a particular relevance to banks. The Basel Committee on Banking Supervision has circulated a consultative paper which, if adopted by nation-state bank supervisors, will impose an operational risk capital charge on banks as part of a new Capital Accord. The definition of operational risk is wide-ranging and creates some unique issues related to the development of appropriate risk management models. This paper conceptualises two distinct operational risk management models; being a predictive model that will result in a known outcome upon its implementation, and a pre-emptive operational risk management model which prepares an organisation in the event that a future risk occurrence results in a disruption to critical business operations.

Qualitative operational risk software -development of a software tool for determining the root of operational risk

This article shows software that allows determining the statistical behavior of qualitative data originating surveys previously transformed with a Likert’s scale to quantitative data. The main intention is offer to users a useful tool to know statistics' characteristics and forecasts of financial risks in a fast and simple way. Additionally,this paper presents the definition of operational risk. On the other hand, the article explains different techniques to do surveys with a Likert’s scale (Avila, 2008) to know expert’s opinion with the transformation of qualitative data to quantitative data. In addition, this paper will show how is very easy to distinguish an expert’s opinion related to risk, but when users have a lot of surveys and matrices is very difficult to obtain results because is necessary to compare common data. On the other hand, statistical value representative must be extracted from common data to get weight of each risk. In the end, this article exposes the development of “Qualitative Operational Risk Software” or QORS by its acronym, which has been designed to determine the root of risks in organizations and its value at operational risk OpVaR (Jorion, 2008; Chernobai et al, 2008) when input data comes from expert’s opinion and their associated matrices.

A methodology proposal to obtain operational parameter forecasts and operational risk assessment in container terminals

Las terminales de contenedores son sistemas complejos en los que un elevado número de actores económicos interactúan para ofrecer servicios de alta calidad bajo una estricta planificación y objetivos económicos. Las conocidas como "terminales de nueva generación" están diseñadas para prestar servicio a los mega-buques, que requieren tasas de productividad que alcanzan los 300 movimientos/ hora. Estas terminales han de satisfacer altos estándares dado que la competitividad entre terminales es elevada. Asegurar la fiabilidad de las planificaciones del atraque es clave para atraer clientes, así como reducir al mínimo el tiempo que el buque permanece en el puerto. La planificación de las operaciones es más compleja que antaño, y las tolerancias para posibles errores, menores. En este contexto, las interrupciones operativas deben reducirse al mínimo. Las principales causas de dichas perturbaciones operacionales, y por lo tanto de incertidumbre, se identifican y caracterizan en esta investigación. Existen una serie de factores que al interactuar con la infraestructura y/o las operaciones desencadenan modos de fallo o parada operativa. Los primeros pueden derivar no solo en retrasos en el servicio sino que además puede tener efectos colaterales sobre la reputación de la terminal, o incluso gasto de tiempo de gestión, todo lo cual supone un impacto para la terminal. En el futuro inmediato, la monitorización de las variables operativas presenta gran potencial de cara a mejorar cualitativamente la gestión de las operaciones y los modelos de planificación de las terminales, cuyo nivel de automatización va en aumento. La combinación del criterio experto con instrumentos que proporcionen datos a corto y largo plazo es fundamental para el desarrollo de herramientas que ayuden en la toma de decisiones, ya que de este modo estarán adaptadas a las auténticas condiciones climáticas y operativas que existen en cada emplazamiento. Para el corto plazo se propone una metodología con la que obtener predicciones de parámetros operativos en terminales de contenedores. Adicionalmente se ha desarrollado un caso de estudio en el que se aplica el modelo propuesto para obtener predicciones de la productividad del buque. Este trabajo se ha basado íntegramente en datos proporcionados por una terminal semi-automatizada española. Por otro lado, se analiza cómo gestionar, evaluar y mitigar el efecto de las interrupciones operativas a largo plazo a través de la evaluación del riesgo, una forma interesante de evaluar el effecto que eventos inciertos pero probables pueden generar sobre la productividad a largo plazo de la terminal. Además se propone una definición de riesgo operativo junto con una discusión de los términos que representan con mayor fidelidad la naturaleza de las actividades y finalmente, se proporcionan directrices para gestionar los resultados obtenidos. Container terminals are complex systems where a large number of factors and stakeholders interact to provide high-quality services under rigid planning schedules and economic objectives. The socalled next generation terminals are conceived to serve the new mega-vessels, which are demanding productivity rates up to 300 moves/hour. These terminals need to satisfy high standards because competition among terminals is fierce. Ensuring reliability in berth scheduling is key to attract clients, as well as to reduce at a minimum the time that vessels stay the port. Because of the aforementioned, operations planning is becoming more complex, and the tolerances for errors are smaller. In this context, operational disturbances must be reduced at a minimum. The main sources of operational disruptions and thus, of uncertainty, are identified and characterized in this study. External drivers interact with the infrastructure and/or the activities resulting in failure or stoppage modes. The later may derive not only in operational delays but in collateral and reputation damage or loss of time (especially management times), all what implies an impact for the terminal. In the near future, the monitoring of operational variables has great potential to make a qualitative improvement in the operations management and planning models of terminals that use increasing levels of automation. The combination of expert criteria with instruments that provide short- and long-run data is fundamental for the development of tools to guide decision-making, since they will be adapted to the real climatic and operational conditions that exist on site. For the short-term a method to obtain operational parameter forecasts in container terminals. To this end, a case study is presented, in which forecasts of vessel performance are obtained. This research has been entirely been based on data gathered from a semi-automated container terminal from Spain. In the other hand it is analyzed how to manage, evaluate and mitigate disruptions in the long-term by means of the risk assessment, an interesting approach to evaluate the effect of uncertain but likely events on the long-term throughput of the terminal. In addition, a definition for operational risk evaluation in port facilities is proposed along with a discussion of the terms that better represent the nature of the activities involved and finally, guidelines to manage the results obtained are provided.

Strategic and operational risk in an international collaboration agency: a knowledge management solution

The International Cooperation Agency (identified in this article as IDEA) working in Colombia is one of the most important in Colombian society with programs that support gender rights, human rights, justice and peace, scholarships, aboriginal population, youth, afro descendants population, economic development in communities, and environmental development. The identified problem is based on the diversified offer of services, collaboration and social intervention which requires diverse groups of people with multiple agendas, ways to support their mandates, disciplines, and professional competences. Knowledge creation and the growth and sustainability of the organization can be in danger because of a silo culture and the resulting reduced leverage of the separate group capabilities. Organizational memory is generally formed by the tacit knowledge of the organization members, given the value of accumulated experience that this kind of social work implies. Its loss is therefore a strategic and operational risk when most problem interventions rely on direct work in the socio-economic field and living real experiences with communities. The knowledge management solution presented in this article starts first, with the identification of the people and groups concerned and the creation of a knowledge map as a means to strengthen the ties between organizational members; second, by introducing a content management system designed to support the documentation process and knowledge sharing process; and third, introducing a methodology for the adaptation of a Balanced Scorecard based on the knowledge management processes. These three main steps lead to a knowledge management “solution” that has been implemented in the organization, comprising three components: a knowledge management system, training support and promotion of cultural change.

Analysis of operational risk of banks – catastrophe modelling

Nowadays financial institutions due to regulation and internal motivations care more intensively on their risks. Besides previously dominating market and credit risk new trend is to handle operational risk systematically. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. First we show the basic features of operational risk and its modelling and regulatory approaches, and after we will analyse operational risk in an own developed simulation model framework. Our approach is based on the analysis of latent risk process instead of manifest risk process, which widely popular in risk literature. In our model the latent risk process is a stochastic risk process, so called Ornstein- Uhlenbeck process, which is a mean reversion process. In the model framework we define catastrophe as breach of a critical barrier by the process. We analyse the distributions of catastrophe frequency, severity and first time to hit, not only for single process, but for dual process as well. Based on our first results we could not falsify the Poisson feature of frequency, and long tail feature of severity. Distribution of “first time to hit” requires more sophisticated analysis. At the end of paper we examine advantages of simulation based forecasting, and finally we concluding with the possible, further research directions to be done in the future.

Qualitative operational value at risk for an electric utility based on the guidelines of the basel committee

This paper presents a model for determining value at operational risk ?OpVaR? in electric utilities, with the aim to confirm the versatility of the Bank for International Settlements (BIS) proposals. The model intends to open a new methodological approach in risk management, paying special attention to underlying operational sources of risk.

Trust-Level Risk Evaluation and Risk Control Guidance in the NHS East of England

In recent years, the healthcare sector has adopted the use of operational risk assessment tools to help understand the systems issues that lead to patient safety incidents. But although these problem-focused tools have improved the ability of healthcare organizations to identify hazards, they have not translated into measurable improvements in patient safety. One possible reason for this is a lack of support for the solution-focused process of risk control. This article describes a content analysis of the risk management strategies, policies, and procedures at all acute (i.e., hospital), mental health, and ambulance trusts (health service organizations) in the East of England area of the British National Health Service. The primary goal was to determine what organizational-level guidance exists to support risk control practice. A secondary goal was to examine the risk evaluation guidance provided by these trusts. With regard to risk control, we found an almost complete lack of useful guidance to promote good practice. With regard to risk evaluation, the trusts relied exclusively on risk matrices. A number of weaknesses were found in the use of this tool, especially related to the guidance for scoring an event's likelihood. We make a number of recommendations to address these concerns. The guidance assessed provides insufficient support for risk control and risk evaluation. This may present a significant barrier to the success of risk management approaches in improving patient safety. © 2013 Society for Risk Analysis.