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Approaches to risk management banking example slides

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Approaches to risk management   banking example slides Approaches to risk management banking example slides Presentation Transcript

  • Define RiskEffect of Uncertainity on objectivesIMPACT * PROBABILITY
  • Likelihood• Rare• Likely• Very likely• Frequent• High (Probable)• Medium(Possible)• Low (Remote)
  • The impact of uncertainityCan be• Adverse / Negative / Bad / Threat–Hazard Risk / Pure Risk• Opportunity/ Positive / Reward / enhancing–Speculative Risk / Opportunity Risk• Uncertain impact related to technicalproblems–Control Risk View slide
  • Enterprise Risk ManagementTHE ORIGIN View slide
  • In a Banking IndustryBankStrategyOperationsReputationComplianceFinancial
  • Strategic Risksis risk related to the Business long term plan(strategic plan) implementation and to obtainingthe high-level goals that are aligned with it insupporting the organizations objectives.• Competition; Uncertainty about identifying potentialfuture markets• Regulatory and political trends; uncertainty aboutregulatory changes, political instability; Terrorism , War,Strikes
  • In a Banking IndustryBankStrategyOperationsReputationComplianceFinancial
  • operational Risks“the risk of loss resulting from inadequate orfailed business processes, people and systems orfrom external events”• Business operations (e.g. human resources, productdevelopment, supply chain).• Empowerment (e.g. leadership, change readiness).• Information technology (e.g. relevance, availability).• information/ Business reporting (eg budgeting andplanning, accounting information,etc)
  • In a Banking IndustryBankStrategyOperationsReputationComplianceFinancial
  • Financial Risks• Credit Risk “the risk that there will be a failure by customer/client torepay the principal and/or interest on a loan or other outstandingdebt in a timely manner, or at all”• Market Risk “the risk that the value of investments may declineover a period, simply because of economic changes or other eventsthat impact large portions of the market”• Price (e.g. asset value, foreign exchange)• related to how the company monitors the credits and debtorsand how they determine the credit period.• Inflation/Purchasing power
  • In a Banking IndustryBankStrategyOperationsReputationComplianceFinancial
  • Compliance Risk• Legal or Compliance Risks are those risks ofloss because of legal compliance issues.• company‘s violations to other companies‘rights• fulfilling contracts legal requirements• meeting legislation and compliancerequirements.
  • Banking IT System failure• Origin of risk: Operational Risk• Type of Risk: Hazard ( Pure ) risk• Risk Evaluation:Risk = Impact * Likelihood
  • IT System failure likelihood• Likelihood: Evaluation (when dealing with objective risk) or judgment(when dealing with subjective risk), regarding the chances of a riskmaterializing, sometimes referred to as ‘probability.• The likelihood of a total IT system failure risk to materialize in a Jordanianbank industry is very low; for it never happened in the last 10 years ….• So according to the following it can be evaluated as degree 1 likelihoodrisk
  • IT System failure likelihoodEstimation Description IndicatorsHigh = 3(Probable)Likely to occur each year ormore than 25% chance ofoccurrencePotential of it occurring severaltimes within the time period (eg10 years). Has occurred recentlyMedium = 2(Possible)Likely to occur in a 10 yeartime period of less than 25%chance of occurrenceCould occur more than oncewithin the time period (eg - 10years). Could be difficult tocontrol due to some externalinfluences. Is there a history ofoccurrence?Low = 1(Remote)Not likely to occur in a 10 yearperiod of less than 2% chanceof occurrenceHas not occurred.Unlikely to occur.
  • Banking IT System failure• Origin of risk: Operational Risk• Type of Risk: Hazard ( Pure ) risk• Risk Evaluation:– Low probability risk = 1– ?? ImpactRisk = Impact * Likelihood
  • IT System failure Impact• Impact: The degree of the risk consequences severity expressed in– social, economic, political or environmental aspects.– Operational, strategic, financial, legal and stakeholders disruption• The Impact of a total IT system failure risk if materialized is:total banking Operational disruptionStakeholders anxietyReputational Risk• Such impact is most suitable to a Medium impact level as shown in thetable next ….
  • IT System failure impactHigh = 3 Financial impact on the organisation is likely to exceed £1,000,000Significant impact on the organisation’s strategy or operational activitiesSignificant stakeholder concernMedium= 2Financial impact on the organisation is likely to be between £1,000,000 and £100,000Moderate impact on the organisation’s strategy or operational activitiesModerate stakeholder concernLow =1 Financial impact on the organisation is likely to be less than £100,000Low impact on the organisation’s strategy or operational activitiesLow stakeholder concern
  • Banking IT System failure• Origin of risk: Operational Risk• Type of Risk: Hazard ( Pure ) risk• Risk Evaluation:– Low probability risk = 1– Meduim Impact = 2Risk = Impact * LikelihoodR = 2 * 1
  • Risk MatrixHigh probability3Medium probability2low probability1321Low =1642Medium = 2963High = 3
  • Risk Matrix
  • Risks of Banking IT System failure• According to the previously explainedevaluation of total IT system failure risk. Suchrisk can be described as unacceptable risk(4/9) that needs to be controlled and treatedwithin the in house organizational resources(House keeping risk).