Operational Risk Management: How Emerging Best Practices Can Improve Performance

Transcription

1 Operational Risk Management: Enter Presentation Title Here How Emerging Best Practices Can Improve Performance Charles Taylor Director, Operational Risk RMA 1

2 BBC Photograph 2

3 Controls Failures New Business Remote Ops High Profits BBC Photograph 3

4 Agenda Definitions & Drivers Frameworks & Tools Getting to Excellence 4

5 Agenda Definitions & Drivers Frameworks & Tools Getting to Excellence 5

6 Definition The risk of direct or indirect loss due to a failure of people, process or systems, or due to external events. Compliance Risk Legal Risk Reputation Risk Business Risk 6

7 Sources of Operational Risk (Top-2-Box, 1 = Not at all Important 7 = Extremely Important) External fraud Execution, delivery and process management Business disruption and system failure Clients, products and business practices Internal fraud 75% 74% 71% 67% 59% Employment practices and workplace safety Damage to physical assets 30% 38% 0% 20% 40% 60% 80% 100% RMA Survey

8 Importance of Drivers (Top-2-Box, 1 = Not at all Important 7 = Extremely Important) Improving performance 83% Reducing operational losses Increasing accountability and improving governance Protecting against loss of reputation 70% 66% 73% Meeting Sarbanes/Oxley requirements Optimizing the allocation of capital Combating the threat of business disruption, including terrorism Meeting Basel II regulatory requirements 52% 51% 44% 36% 0% 20% 40% 60% 80% 100% RMA Survey

9 Agenda Definitions & Drivers Frameworks & Tools Getting to Excellence 9

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11 OR Framework Risks events risk points, and patterns of risk Options reduce incidence reduce loss, and absorb loss Management set direction understand risks, and implement excellently identify/assess/measure/monitor/manage 11

12 Risk Point Framework The RBI Risk Point Framework 12

13 Risk Maps 13

14 KRIs ATM Robberies Staff Turnover Value and Volume C&S Breaks Audit Points Remoteness Training 14

15 RCSA Brainstorming Objectives Processes Risks Controls Tests Mitigation Issues/Actions 15

16 Agenda Definitions & Drivers Frameworks & Tools Getting to Excellence 16

17 Class A Mishaps/100,000 Flight Hours Naval Aviation Mishap Rate 776 aircraft destroyed in 1954 Angled Carrier Decks FY Naval Aviation Safety Center NAMP est RAG concept initiated NATOPS initiated 1961 Squadron Safety program 39 aircraft destroyed in Fiscal Year From Tony Ciavarelli: ORRT Presentation 5/

18 Excellence in Operational Risk Three simple standards to measure excellence: Creating a No Surprise Environment Improving Financial Performance Pursuing Active Management of Risk Question: How are we doing against these standards? From Joe Sabatini: GORF Presentation 1/

19 Excellence in Operational Risk Creating a No Surprise Environment Improving Financial Performance Pursuing Active Management of Risk Current State Loss events, negative audits routinely identify new risks / control weaknesses Self assessments are comprehensive, but can lack granularity and precision Hand-offs and interdepartmental dependencies not fully understood Control weaknesses can vary with business cycles Metrics not in place to quantify control effectiveness or provide early warnings Transparency and escalation of issues not always adequate From Joe Sabatini: GORF Presentation 1/

20 Excellence in Operational Risk Creating a No Surprise Environment Improving Financial Performance Pursuing Active Management of Risk Desired State Risk issues / control gaps well known prior to losses / audits Metrics in place to track trends; provide early warnings Interdepartmental dependencies well understood and tracked Issues are appropriately transparent and escalated Risks are taken and managed on fully informed basis From Joe Sabatini: GORF Presentation 1/

21 Excellence in Operational Risk Creating a No Surprise Environment Improving Financial Performance Pursuing Active Management of Risk Current State Size and volatility of losses can materially impact business performance Some businesses cannot estimate or accurately budget for losses Large losses / risk events impact reputation, may compress share price & P/E ratios Manual nature of data management, reporting and compliance unnecessarily costly Nonstandard tools, processes and methodologies in place across each business Regulatory initiatives (e.g. Basel II, SOX) pursued as independent projects From Joe Sabatini: GORF Presentation 1/

22 Excellence in Operational Risk Creating a No Surprise Environment Improving Financial Performance Pursuing Active Management of Risk Desired State Size and volatility of losses track within predictable / budgetable parameters Strong risk performance and reputation commands premium P/E ratio Data aggregation and reporting automated using single source of information Single processes / tools leveraged for multiple purposes Regulatory requirements embedded in BAU processes and tools Resources dedicated to control improvements From Joe Sabatini: GORF Presentation 1/

23 Excellence in Operational Risk Creating a No Surprise Environment Improving Financial Performance Pursuing Active Management of Risk Current State Full costs of op risk not fully measured or understood Cost of op risk not fully reflected in business P/L Op risk information and insurance purchases not integrated / coordinated No understanding of correlation between market / credit risk and op risk No understanding of impact of external factors, business cycles, etc. No concept of portfolio risk management applied to operational risk From Joe Sabatini: GORF Presentation 1/

24 Excellence in Operational Risk Creating a No Surprise Environment Improving Financial Performance Pursuing Active Management of Risk Desired State Costs of operational risk fully understood and reflected in business P/L Correlations with other risks, external factors etc. well understood Insurance coverage closely integrated with internal measures of risk Tools and products exist to transfer / mitigate operational risk on a portfolio basis Enterprise Risk Management becomes a reality From Joe Sabatini: GORF Presentation 1/

25 Operational Risk Management: Enter Presentation Title Here How Emerging Best Practices Can Improve Performance Charles Taylor Director, Operational Risk RMA 25