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Rm 12

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Rm 12

  1. 1. Risk ManagementUniversity of Economics, Kraków, 2012 Tomasz Aleksandrowicz
  2. 2. operational risk management industry example: banking three approaches to ORM
  3. 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. 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. 5. Standardized Approach – beta factor 5
  6. 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. 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. 8. strategic risk management SRM overview main strategic/business risks tools & techniques
  9. 9. Strategic Risk Management (SRM)
  10. 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. 11. strategic risk management Ernst & Young 2008-2010 Global Business Risk reports
  12. 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. 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. 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. 15. 2010 – industries in detail
  16. 16. strategic risk management tool & techniques
  17. 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