PETER HUGHES MOBILE +44 (0) 7766 916 541 ARC BEST PRACTICES LIMITED 2 SYCAMORE STREET LONDON EC1Y...
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PETER HUGHES MOBILE +44 (0) 7766 916 541 EMAIL [email protected] ARC BEST PRACTICES LIMITED 2 SYCAMORE STREET LONDON EC1Y 0SF UNITED KINGDOM TELEPHONE +44 (0) 20 7251 9784 WWW.ARC1.CO.UK MEASURING OP RISK EXPOSURE MEASURING OP RISK EXPOSURE THE KEY TO A COMPLETE OP RISK MANAGEMENT PROGRAMME THE KEY TO A COMPLETE OP RISK MANAGEMENT PROGRAMME
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February 22, 2006Operational Risk Management - The Right Way3 THE FINITE OP RISK ENVIRONMENT THE EFFECTIVENESS OF OP RISK MANAGEMENT IS LIMITED IF THERE IS NOT A FINITE RISK ENVIRONMENT A FINITE ENVIRONMENT FOR OP RISK IS WHERE: –THE TOTAL POPULATION OF OP RISK EXPOSURES IS QUANTIFIED AND A FINITE FRAMEWORK OF RISK CONTROL TOTALS IS ESTABLISHED –OP RISKS ARE REPORTED WITHIN A UNIFIED FRAMEWORK OF STANDARDISED CORPORATE RISK METRICS THAT CAN BE AGGREGATED AND CONSOLIDATED THIS IS WHAT ARC1 DOES!
Transcript of PETER HUGHES MOBILE +44 (0) 7766 916 541 ARC BEST PRACTICES LIMITED 2 SYCAMORE STREET LONDON EC1Y...
PETER HUGHESMOBILE +44 (0) 7766 916 541EMAIL [email protected] BEST PRACTICES LIMITED2 SYCAMORE STREET LONDON EC1Y 0SF UNITED KINGDOMTELEPHONE +44 (0) 20 7251 9784 WWW.ARC1.CO.UK
MEASURING OP RISK EXPOSUREMEASURING OP RISK EXPOSURE
THE KEY TO A COMPLETE OP RISK MANAGEMENT PROGRAMMETHE KEY TO A COMPLETE OP RISK MANAGEMENT PROGRAMME
February 22, 2006 Operational Risk Management - The Right Way 2
TODAY’S AGENDATODAY’S AGENDA
• THE FINITE OP RISK ENVIRONMENT
• THE BASIC CONCEPTS
• THE ARC1 WORKFLOW
• THE OP RISK MEASUREMENTS
• ARC1 SAMPLE SCREENSHOTS
• ARC1 SAMPLE DASHBOARDS
• ABOUT ARC1
February 22, 2006 Operational Risk Management - The Right Way 3
THE FINITE OP RISK ENVIRONMENTTHE FINITE OP RISK ENVIRONMENT• THE EFFECTIVENESS OF OP RISK MANAGEMENT IS LIMITED
IF THERE IS NOT A FINITE RISK ENVIRONMENT
• A FINITE ENVIRONMENT FOR OP RISK IS WHERE:
– THE TOTAL POPULATION OF OP RISK EXPOSURES IS QUANTIFIED AND A FINITE FRAMEWORK OF RISK CONTROL TOTALS IS ESTABLISHED
– OP RISKS ARE REPORTED WITHIN A UNIFIED FRAMEWORK OF STANDARDISED CORPORATE RISK METRICS THAT CAN BE AGGREGATED AND CONSOLIDATED
THIS IS WHAT THIS IS WHAT ARC1 ARC1 DOES!DOES!
February 22, 2006 Operational Risk Management - The Right Way 4
THE BASIC CONCEPTSTHE BASIC CONCEPTS• END-TO-END TRANSACTION PROCESSING CYCLES ARE
DECONSTRUCTED AND REDUCED TO ‘PROCESSES’
• EACH PROCESS HAS THREE MEASURABLE PROPERTIES:– ACTIVITY– VOLUME– RISK SCORE
• BENCHMARK DATA COLLECTED IN 3 STANDARD TABLES WITH RISK QUOTIENTS / WEIGHTINGS ATTACHED:
RISK DRIVER TABLES
OPERATIONAL ACTIVITY
DAILY VOLUMES
CAUSES OF OPERATIONAL FAILURE
34 ACTIVITY QUOTIENTS
8 VOLUME BAND WEIGHTINGS
9 CATEGORY/30 SUB-CATEGORY SCORING TEMPLATES
February 22, 2006 Operational Risk Management - The Right Way 5
Infinity
CONSTRUCT PROCESS HIERARCHIES
MAP CURRENT / TARGET STATUS TO ARC1 TABLES:1. ACTIVITY (34 ACTIVITY TYPES / RISK QUOTIENTS)2. VOLUME (8 VOLUME BAND WEIGHTINGS)3. RISK SCORING (9 CATEGORIES / 30 SUB-CATEGORIES)
INPUT ACTION ITEMS
RUN ARC1
THE ARC1 WORKFLOWTHE ARC1 WORKFLOW
February 22, 2006 Operational Risk Management - The Right Way 6
THE OP RISK MEASUREMENTSTHE OP RISK MEASUREMENTS
• ARC1 USES THREE BASIC MEASUREMENTS TO MONITOR AND TRACK OP RISK: – RISK CONCENTRATION
• OPERATIONAL SIZE – RISK WEIGHTED TRANSACTIONS• COMBINATION OF ACTIVITY RISK QUOTIENT AND VOLUME BAND
WEIGHTING• EXPRESSED IN OPERATIONAL RISK UNITS (ORUs)
– RISK MITIGATION INDICATOR - RMI• REPRESENTS EFFECTIVENESS OF RISK COUNTERMEASURES• EXPRESSED ON A SCALE OF ZERO TO 100
– VALUE-AT-RISK• REPRESENTS POTENTIAL IMPACT OF OPERATIONAL FAILURE• COMBINATION OF RISK CONCENTRATION AND RMI• EXPRESSED IN OPERATIONAL RISK UNITS (ORUs)
February 22, 2006 Operational Risk Management - The Right Way 7
February 22, 2006 Operational Risk Management - The Right Way 8
Select peak daily value supported by
the Process
MAPPING PROCESS TO VOLUME BANDMAPPING PROCESS TO VOLUME BAND
February 22, 2006 Operational Risk Management - The Right Way 9
February 22, 2006 Operational Risk Management - The Right Way 10
GENERATE RISK MEASUREMENTSGENERATE RISK MEASUREMENTS
Generate risk measurements
February 22, 2006 Operational Risk Management - The Right Way 11
GENERATE RISK REDUCTION PLANGENERATE RISK REDUCTION PLAN
Construct risk reduction plans
February 22, 2006 Operational Risk Management - The Right Way 12
SAMPLE LOSS EVENT CAPTURESAMPLE LOSS EVENT CAPTURE
February 22, 2006 Operational Risk Management - The Right Way 13
OP RISK OVERVIEW DASHBOARDOP RISK OVERVIEW DASHBOARD
February 22, 2006 Operational Risk Management - The Right Way 14
DEPARTMENTAL ANALYSISDEPARTMENTAL ANALYSIS
February 22, 2006 Operational Risk Management - The Right Way 15
KEY RISK INDICATORSKEY RISK INDICATORS
February 22, 2006 Operational Risk Management - The Right Way 16
DEPARTMENTAL PROFILEDEPARTMENTAL PROFILE
February 22, 2006 Operational Risk Management - The Right Way 17
ABOUT ARC1ABOUT ARC1• PLUG-AND-PLAY / INTERNET, INTRANET OR STANDALONE PC / SQL
DATABASE / SUPPORTS UNLIMITED USERS
• FULLY RESEARCHED OP RISK BENCHMARKS COMPILED OVER 6 YEARS OF CONTINUOUS APPLICATION
• AUDITABLE - STANDARDISED OP RISK MEASUREMENT TABLES
• LOSS EVENT CAPTURE AND REPORTING MODULE – ATTACHES OP RISK CONTEXT TO LOSS EVENTS
• COMPREHENSIVE REPORTING CAPABILITY:
– SCORECARDS
– RISK REDUCTION PLANS
– MANAGEMENT DASHBOARDS – OP RISK MEASUREMENTS ACROSS THE COMPANY DRILLING TO INDIVIDUAL DEPARTMENT PROFILES
• THE ULTIMATE RISK PROFILING TOOL FOR BASEL II / PILLAR 2
• RISK MANAGEMENT BECOMES A LEARNING EXPERIENCE
February 22, 2006 Operational Risk Management - The Right Way 18
CONTACTS
ARC1 REPRESENTATIVE IN ROMANIA:PAUL COSTEACREATIVE BUSINESS PARTNERSTEL. + (40) 722 301496E-MAIL [email protected]
