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  • 1. Risk ManagementUniversity of Economics, Kraków, 2012 Tomasz Aleksandrowicz
  • 2. operational risk management industry example: banking three approaches to ORM
  • 3. #1 Basic Indicator Approach• simplest operational risk measurement method• banks has to hold capital reserves for operational loss• average income gross income from previous 3 years times given percentage (alpha)• years with negative or zero income excluded• committee alpha percentage – 15% (represents industry average operational risk) 3
  • 4. #2 Standardized Approach• more complex method of operational risk measurement• banks has to hold capital reserves for operational loss• three-year average across each of the business lines in each year times given percentage (beta) 4
  • 5. Standardized Approach – beta factor 5
  • 6. #3 Advanced Measurement Approach• comprehensive method based on bank’s internal operational risk measurement system• quantitative and qualitative criteria• subject of regulatory approval• minimum five-year observation period of internal loss data• external data could be used 6
  • 7. Advanced Measurement Approach (II)• bank must be able to demonstrate that its approach captures even unlikely events• high-severity events must be subject of scenario analysis and use external data and expert advisory
  • 8. strategic risk management SRM overview main strategic/business risks tools & techniques
  • 9. Strategic Risk Management (SRM)
  • 10. SRM areas of interest• regulatory environment• economy• customer demand and customer trends• competition and industry specific changes• technological trends and changes• key assets management – key people risk• M&A and internal change activities• financial and operational activities
  • 11. strategic risk management Ernst & Young 2008-2010 Global Business Risk reports
  • 12. Top 10 risks at 2008 (pre-crisis view)1. Regulatory and compliance2. Global financial shocks3. Aging consumers and workforce4. The inability to capitalize on emerging markets5. Industry consolidation/transition6. Energy shocks7. Execution of strategic transactions8. Cost inflation9. Radical greening10. Consumer demand shifts
  • 13. Top 10 risks at 20091. The credit crunch2. Regulatory and compliance3. Deepening recession4. Radical greening5. Non-traditional entrants6. Cost cutting7. Managing talent8. Executing alliances and transactions9. Business model redundancy10. Reputation risk
  • 14. Top 10 risks at 20101. Regulatory and compliance2. Access to credit3. Slow recovery/double-dip recession4. Managing talents5. Emerging markets6. Cost-cutting7. Non-traditional entrants8. Radical greening9. Social acceptance risk / CSR10. Executing alliances and transactions
  • 15. 2010 – industries in detail
  • 16. strategic risk management tool & techniques
  • 17. main tools & techniques• internal and external SME (Subject Matter Experts)• KRI (Key Risk Indicators)• risk mapping and decision tree analysis• scenario analysis (incl. stress-testing)• statistical analysis/probabilistic modeling• industry benchmarks• SWOT analysis

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