As part of operational risk management, it is important to measure operational risk as part of the process in modeling and capital planning.

1. DR. EMMANUEL MOORE ABOLO
GMD/CEO, The Risk Management Academy Limited
President, Institute for Governance, Risk Management & Compliance
Professionals
President, Professional Speakers Society of Nigeria &
Director General, The Economic Thinktank Centre
ORM MEASUREMENT
FRAMEWORK

2. OUTLINE
• ORM CYCLE
• FRAMEWORK CRITERIA AND ASSUMPTIONS
• CURRENT FRAMEWORK APPROACHES
• MEASUREMENT PROCESS FOR ORM
ORM MEASUREMENT FRAMEWORK 2

3. RISK MANAGEMENT CYCLE
ORM MEASUREMENT FRAMEWORK 3
External

4. ORM CYCLE
ORM MEASUREMENT FRAMEWORK 4

5. ORM CYCLE
ORM MEASUREMENT FRAMEWORK 5
Corporate Activities

6. FRAMEWORK CRITERIA AND ASSUMPTIONS
ORM MEASUREMENT FRAMEWORK 6

7. FRAMEWORK CRITERIA AND ASSUMPTIONS
ORM MEASUREMENT FRAMEWORK 7

8. FRAMEWORK CRITERIA AND ASSUMPTIONS
ORM MEASUREMENT FRAMEWORK 8
• Management driven
• Provides consistent policies and procedures to be applied
firm-wide
• Must have a consistent and comprehensive capture of data
elements
• Must reflect the scope and complexity of all business
activities
• Be ‘fit-for-purpose’, unique and require a tailored approach
that is appropriate for the scale and materiality of the size
and risks prevalent in the institution

9. CORE PRINCIPLES FOR AN EFFECTIVE ORM
ORM MEASUREMENT FRAMEWORK 9
• A strong risk culture is the basis for an effective operational risk
management framework : It requires transparency regarding
operational risk issues throughout your organization, including
leadership and the businesses. Accordingly, your operational risk
management function must be transparent as well.
• Develop and implement a risk appetite statement and relevant
thresholds and limits based on your institution’s business model
and tolerances.
• COMMUNICATIONS: 3 lines of defense. Critical to effective risk
management. Timely communications; Effective communications;
Clear communications.

10. CORE PRINCIPLES FOR AN EFFECTIVE ORM
ORM MEASUREMENT FRAMEWORK 10
• GOVERNANCE, POLICIES, AND PROCEDURES: Ensure
accountability through an effective governance structure that
oversees your institution’s risk and control environment.
• RISK IDENTIFICATION AND ASSESSMENT: You should strive to
understand all the risks your institution faces and the potential
downside implications under a range of scenarios.
• CONTROL ENVIRONMENT MUST BE WELL ESTABLISHED
• MONITORING AND REPORTING: Establish and maintain a well-
developed risk reporting structure.
• QUANTIFICATION, MEASUREMENT, AND MODELING : Follow a
structured methodology for establishing and prioritizing the risk
management process universe and performing risk assessments
based on inherent risk level.

11. CORE PRINCIPLES FOR AN EFFECTIVE ORM
ORM MEASUREMENT FRAMEWORK 11
• RISK DECISION-MAKING: As part of sound business and strategic
decision-making, assess and consider operational risk
implications to determine whether to Tolerate the risk: Manage
the risk; Transfer the risk; Decline the risk.
• INCENTIVIZING BEHAVIORS

12. CURRENT FRAMEWORK APPROACHES
ORM MEASUREMENT FRAMEWORK 12
Governance Architecture

13. MEASUREMENT PROCESS FOR ORM
ORM MEASUREMENT FRAMEWORK 13
Operational Risk Process Flow

14. MEASUREMENT PROCESS FOR ORM
ORM MEASUREMENT FRAMEWORK 14
Parameters

15. MEASUREMENT PROCESS FOR ORM
ORM MEASUREMENT FRAMEWORK 15
Probability or Likelihood

16. MEASUREMENT PROCESS FOR ORM
ORM MEASUREMENT FRAMEWORK 16
Impact or Severity

17. MEASUREMENT OF ORM FOR CAPITAL CHARGE-AMA
ORM MEASUREMENT FRAMEWORK 17

18. ORM MEASUREMENT FRAMEWORK 18

19. ORM MEASUREMENT FRAMEWORK 19

20. ORM MEASUREMENT FRAMEWORK 20
info@theriskacademy.org
info@pssn.org.ng
aboloemma@gmail.com
mail@drabolomoore.com
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