System for measurement and management of operational risk
Operational risk is very difficult to capture because it is connected with human factors, technologies and natural events. So far, companies concentrating mainly on preventive measures but qualified operational risk management require the knowledge of the structure of operational risk events and the losses resulting from them. Regulatory measures known under the terms Solvency II and Basel II also impose rules for the identification, measurement and management of operational risk. Although these rules are binding for banks and insurance companies, they are also an important basis for non-financial institutions.
There are a number of issues that companies need to address in connection with the above rules. For example:
- lack of data for operational risk management
- complexity of the procedure for processing existing operational risk events
- lack of labor capacities
- difficult orientation within a regulatory framework
- change of internal (intra-company) procedures
- application of new methodology for operational risk management
In order to facilitate the solution of these issues, we offer developing the software for measurement and management of operational risk.
What could the software include?
The software could allows:
Possible modules of software
Module ‘Collection of operational risk events’
This module is used to record operational risk events such as erroneous employee actions, natural disasters and system breakdowns. Events are intuitively recorded into pre-defined categories depending on the type of event and activity from which they originate.
- possibility to use code lists (pre-defined categories)
- possibility to use the help menu
- control of correctness and completeness of records
- possibility of subsequent revision and correction of records
- monitoring the duplicity of records
- monitoring the development of an event
- archiving records for audit purposes
- possibility to use templates (e.g. in the liquidation of damage events)
Module ‘Risk and Control Self Assessment’ (RCSA)
The module RCSA allows institutional experts to record plans and/or forecasts of the frequency and severity of losses from individual operational risk events, to maintain such records, retroactively search and automatically compare them to actual losses.
- input of expert risk estimates
- archiving of expert estimates (including historical)
- automatic monitoring of limits for the quantity and amount of losses - early warning system
- report generation
Module ‘Prevention’
The module ‘Prevention’ contains a number of internal procedures and instruments which assist in avoiding operational risk events.
- recording institution’s internal directives regulating the area of operational risk
- search of institution’s internal regulations (by activity and type of loss)
- analyzing efficiency of insurance policies
- templates for reports on damage events
Module ‘Key Risk Indicators’ (KRI)
Module KRI is used to create a list of indicators influencing operational risk including the allocation of relevant values. The increase or decrease of the value of such indicators is a signal that operational risk may increase.
- input and archiving of risk indicators
- input and archiving of the values of risk indicators
- possibility to extend and restrict the list of risk indicators
- setting-up limits for risk indicators and their monitoring – early warning system
Module ‘Business Continuity Management’
The module ‘Business Continuity Management’ assists you to restore, as fast as possible, regular operations in cases where operational risk has occurred and paralyzed or distorted your operations.
- recording contingency and recovery plans (by activity and risk event types)
- search of contingency and recovery plans (by activity and risk event types)
- planning and control of compliance with emergency situations exercises
Module ‘Insurance’
The module ‘Insurance’ encompasses insurance policies in a structured way and allows an easy search (by activity and type of loss).
- recording insurance policies
- search for insurance policies
Module ‘Operational risk analysis’
The module integrates data from the above modules and assists experts in analyzing such data and make informed decisions about the risk management method.
- integration of data from the above modules
- search of information about operational risk events (by activity and risk type)
- simple analysis of information on operational risk events
Export and reporting
All the modules have reporting capacities in various forms and for different purposes
- summary executive report
- standardized reports for risk management personnel and other expert departments
- development of own reports
- graphic visualization of the distribution of operational risk events, RCSA and KRI
- export of data into *.xls, *.txt, *.pdf and other standard formats