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Operations Risk Management and Mitigation - from Assessment to Implementation  

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Financial Officers, Risk Officers, Internal Auditors, Operational Risk Managers, Staff with roles and responsibilities in operational risk in risk management departments, businesses and central departments.


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Seminar Summary:

Operations Risk Management is about protecting a bank’s sustainability & long-term health. It’s about growing a bank’s revenue & increasing its reputation in the market. In short, Operations Risk Management is a value added rather than a cost center. (see full course description)


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Training Course Syllabus:

Operations Risk Management and Mitigation - from Assessment to Implementation: 2-day In-person Seminar - Compliance Training Seminar

By:Richard Barr, Operational Risk & Back Office SpecialistLocation


Recently, a series of headline-grabbing operational risk incidents at banks, other financial institutions and even regulators have again brought the issue of operational risk management to the forefront of the agendas of CEOs, CROs, risk managers and internal and external auditors alike. These incidents are wide ranging and flow from bank ATM collapses, bank operating system failures, regulatory settlements in the ongoing US sub-prime mortgage saga, rogue traders and the connected risk managers who either missed or were willfully blind to all the warning signs.

As the size and complexity of financial institutions have increased, so too have the challenges of understanding and reducing operational risks down to truly manageable levels. Increased regulatory concern and scrutiny have also increased the cost of operational risk events in the shape of outright financial loss, regulatory fines and declining customer confidence

Operational Risk Management (ORM) is an effective tool for not only maintaining but increasing, bank profits, shareholder value, public perceptions and goodwill. Executed properly, improvements in ORM can lead to substantial financial, reputational and regulatory benefits – all this adds to increased profitability, greater financial stability and improved customer satisfaction. But to achieve these gains, financial institutions must apply a consistent and comprehensive approach to managing their operational risks. They must also understand that this approach is fundamentally different from the approaches that they use in managing market, credit and liquidity risks.

Bad Operational Risk Management has a severely negative effect on financial institutions in four very clear ways:

  • Actual operational risk losses are a direct hit to the income statement.
  • The market punishes companies, via the stock price, for operational risk failures and this loss could well exceed the actual financial loss experienced.
  • Lowered Credit Ratings, which raises the institutions cost of borrowing money in the marketplace.
  • Operational risk failures can vastly increase the cost of compliance by raising the level of regulatory scrutiny and complexity not to mention substantial penalties.

All too often banks have seen the need to effectively manage their operational risks as simply an issue of complying with what the bank regulator requires, rather than a disciplined process that serves to not only ensure a banks survival but which can, in the long run, contribute to that bank’s financial fortune.

Implementing an effective Operational Risk Management routine is a complex process. At its core is an understanding of what Operations Risk is and how it can be managed. This course is an intensive introduction to Operations Risk management and mitigation. It is designed to provide a practical “hands-on” approach to participants which will furnish them with all the tools and techniques they need to begin implementing what they have learned as soon as they return to the office.

The underlying course philosophy is to move the participants beyond the largely theoretical international compliance requirements for operations risk (such as contained in the Basel Accords), and into an understanding of the practice of operations risk management and an ability to actually implement these procedures.


Day One (8:30 AM – 5:30 PM)

Registration Process: 8:30 AM – 9:00 AM

Session Start Time: 9:00 AM


What is risk?
Operational Risk – The big picture
A short history of risk
Dimension & drivers of risk management
Business drivers
Regulatory drivers
Rating Agencies & risk
Cross-border implications
What is the value of Operational Risk Management?
Risk Types
How we categorize risks
What is covered under Basel II?
Risk categories
Basel’s risk coverage
Operational risk categorization
The financial risk management environment
The operational risk management environment
The technical Implications of operations risk management
Risk & Capital - An Introduction to Basel I, II and III
What is capital?
Capital in financial institutions
The BIS capital standards
Basel’s three pillars
Basle’s operational risk options
Implementation considerations
Implementation of Basel
The Pillar II maze
Implementation issues
Managing Operations Risk
The governance process
Setting risk management objectives
Building a risk culture
Examples of a staff risk culture
Examples of management risk culture
Why are risk cultures important?
Compliance requirements
Operational risk – definition and examples
Enterprise Risk Management
Key elements in managing operations risk
A selection of case studies to illustrate the material covered
The banking activity framework - the “Top-Down” approach of the BIS
Main areas affected by operational risk
Key Risk Factors

Operational Risk –Practical Examples
Participants are led through a series of operational risk failures in recent years aimed a illustrating the wide variety of operational risks that can be encountered.

Case Study: We take detailed look at the 2007, US$ 7.2 billion loss at SocGen, its causes, the key warning signals that were overlooked, and the consequences for the financial industry.

Key Elements in Managing Operational Risk
The core issues in managing operational risk
Risk Analysis
Determining the “Risk Appetite”
Risk impact/ Event frequency
Impact vs. Probability
A generic case study
Operational Risk Financing
Risk financing
Optimizing risk & reward
The cost of risk
The operational risk financing program
Operational risk financing mechanisms
How financing methods are applied
Methods & Models
Measurement methods
The Loss Modeling Method
Monte Carlo simulations
Operational risk & bank strategy
Quantitative & Qualitative approaches
Key Risk Indicators (KRIs)
Operational risk & the business cycle
Problems in identifying operational risks
COSO ERM Framework
COSO - an integrated risk management framework
The COSO framework
Codification of the 17 COSO Principles
The Black Swan
The challenges of outlier events for contingency planners
Understanding a “Black Swan” event and its principal characteristics.
We examine the nature of a Black Swan event
Challenges for Planners, Strategists and CEOs.
How can you mitigate a Black Swan event?

Case Study: Can recent outlier events, like the eruption of Iceland’s Eyjafjallajökull volcano, the Deepwater Horizon catastrophe and the Japanese Tsunami be seen as black swan events? Gain a deeper insight into some of the subtleties of operational risk in the real world.

Operations Risk & Basel (II and III)
The BIS definition of operational risk
BIS standards for managing operational risk
Basic Indicator Approach (BIA)
Business Lines Approach
Advanced Measurement Approaches (AMA)
Loss event types
Criteria for the Advanced Measurement Approach

All Basel material is current and up-to-date in terms of current BIS developments

Managing Operations Risk under Basel - A “Hands-on” approach
Basel Standards
Basel’s’ three approaches
"Sound Practices for the Management and Supervision of Operational Risk"
Principles for the management of operational risk
Sound operational risk governance
Each of the 11 Principles are examined in terms of their content, meaning and implementation factors

Day Two (8:30 AM – 5:00 PM)

Developing an appropriate Risk Management Environment
Policy & structure
Developing an appropriate risk management environment
Mapping risks to controls
Understanding risks, goals and priorities
Prioritizing risk based on probability & impact
Establishing responsibilities for risk management
Mapping risk strategies to categories of control
Designing & Documenting specific controls
Implementing risk management controls
Defining the Categories of Operational Risks

We examine the BIS categories of operation risk in terms of specific examples. The categories covered are:

  • Internal Fraud
  • External Fraud
  • Employment Practices and Workplace Safety
  • Clients, Products & Business Practices
  • Damage to Physical Assets
  • Execution, Delivery & Process Management
  • Business Disruption & System Failures
  • Products & Operations Risk

Case Study: The US Sub-Prime Mortgage Crisis
The 2008 Global financial crisis was triggered by the Sub-Prime Mortgage problem in the United States. This case study clearly illustrates how insufficient or total lack of attention to Operations Risk in the detail and stress testing of the Mortgage Product, its various derivatives as well as the processes and operations led to financial meltdown in the US and its contagion across the globe.


Causes & Consequences – The Bow Tie
The math of operational risk management
Causes & consequences of loss events and what they tell us
The Bow Tie Diagram – building and using this method to create effective operational risk management controls
Methods for Assessing Operational Risks
Four basic assessment methods
Loss data collection (internal & external)
Using loss data
Internal data
External data
Scenario analysis
Using scenarios
Tabletop/ Desktop exercises
Making tabletop exercise effective
Why exercise? Why use scenarios?
Statistical techniques
Desktop Exercise: Scenarios form the basis for a desktop exercise in which participants use and develop their newfound operational risk management skills to work through the simulation of a real risk event.
A Risk Assessment Model
The process
Environmental survey
Technology inventory
Identifying & assessing the operational risks (including an illustrative operations risk management plan)
Minimum control requirements
Risk identification tools
Current Operations Risk Management Themes in Banking
New technologies and practices are changing the nature of bank operational risk in many dramatic ways. In this section we explore a selection of current “risk themes” and get to grips with how the operations risk profile is changing in the constant struggle between profit and prudence.

This is a fast changing area and this section of the course is being constantly updated.


Kweku Adoboli – from rising star to rogue trader
This case study on a recent event provides an in-depth examination of operational risk management failures resulted in substantial losses to UBS. We look at what went wrong and why and what lessons can be learned from this series of events.

Why and how were the lessons of the 2007 SocGen event ignored?

Included in this case study we have a special section on rogue traders generally in which we deal with issues such as:

  • The psychology of the rogue trader
  • Types of traders
  • The FSA investigation and their findings
  • Ranking Adoboli in the rogue traders league

Seminar Summary:

Operations Risk Management is about protecting a bank’s sustainability & long-term health. It’s about growing a bank’s revenue & increasing its reputation in the market. In short, Operations Risk Management is a value added rather than a cost center. (see full course description)

print this agenda print agenda for the Operations Risk Management and Mitigation - from Assessment to Implementation training seminar

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