Managing Operational Risk: 20 Firmwide Best Practice Strategies

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John Wiley & Sons, Jan 25, 2002 - Business & Economics - 534 pages
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Published in association with the Global Association of Risk Professionals
As e-commerce and globalization continue to expand, so does the level of operational risk, increasing the need for guidance on how to measure and manage it. This is the definitive guide to managing operational risk in financial institutions. Written in a concise, no-nonsense style, and containing numerous real-life case studies, it covers all the bases from the basics of what operational risk is to how to design and implement sophisticated operational risk management systems. Readers will appreciate the up-to-the-minute coverage of the latest techniques and practices to manage operational risk. They will learn how to enhance their positions in the face of anticipated new regulatory standards and capital requirements.
Douglas G. Hoffman (Fairfield, CT) is an independent consultant in operational risk management. His firm, Operational Risk Advisors, provides executive training and assists financial institutions and corporate clients worldwide in operational risk analysis and mitigation.
 

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Contents

CHAPTER
1
Organizational Framework for Operational Risk Management
7
CHAPTER
11
Regulatory Developments
13
Key Building Blocks and 20 Best Practice Strategies
19
A Web of Best Practices
25
CNMTER3
29
A Place to Start
35
Conclusion
237
Introduction
239
Organizational Considerations
247
Implementing a System of Risk Indicators
254
Operational Risk Analysis and Decision Tools in Practice
261
Simple Addition and Subtraction
269
Additional Unique Complexities
300
Stages of Information and Reporting Development
306

Business Process Risk
49
Lessons Learned and Key Recommendations
55
Just Good Management?
61
Opportunity Cost Equals Opportunity Lost
73
Franchise and Reputation Risk Management
79
Shareholder Valuation Themes
85
Influencing Factors During and Immediately After the Event
91
The Risk Management Mandate
112
Interrelated Business and Corporate Roles
119
The Operational Risk Working Group or Committee
127
The Operational Risk Management Group
134
Role in Risk Assessment
141
Leadership Organizational Positioning and Reporting Structure
147
0MP1BI
153
Corporate Integrity Franchise and Reputation Risk
159
Incentives and Disincentives for Risk Management
167
Controls Diligence and Legal Risk Management
173
Lessons Learned and Key Recommendations
179
The Quantitative versus Qualitative TugofWar
186
BottomUp Risk Assessment MethodsScenario Analysis
197
TopDown PortfolioLevell Risk Assessment Strategies
206
Lessons Learned and Key Recommendations 151
211
OUPTB110
213
The Need for Data Standards
220
A Step Forward
313
CHAPTER 14
331
Aligning Coverage to Operational Risk Classes
337
The Net Insurance Coverage Challenge
343
Risk Capital and the Information Value of Insurance
349
The Evolution from Insurance to Risk Financing Programs
355
Alternatives for Financing Uninsured Risk
363
Blending the Options
371
Benefits of Economic Capital Models and Performance
377
Reconciling TopDown Models
400
CHAP ran?
404
An Industry Perspective
413
Conclusion
421
Risk Identification and Assessment
429
Risk Assessment Aggregation and Risk Mitigation
435
Ongoing Risk Management Strategies
441
Evolution of Operational Risk Management Technology
447
The Broad Themes
453
Case Studies
461
Build or Buy Considerations
471
Additional Readings
487
Operational Risk Management BMography of Sources 483
509
Index
525
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About the author (2002)

DOUGLAS G. HOFFMAN is an independent consultant specializing in operational risk management. His firm, Operational Risk Advisors, assists financial institutions and corporate clients worldwide in operational risk assessment, analysis, and response, as well as in the design, development, enhancement, and review of risk capital models and risk finance and insurance programs. During his career as a Managing Director at Bankers Trust, and then as CEO of a Web-based technology firm, teams under his lead were credited as pioneers in developing some of the first operational risk-based capital models, databases, operational risk finance and insurance programs, and technology in the industry.