1. Risk Management
University 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
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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 compliance
2. Global financial shocks
3. Aging consumers and workforce
4. The inability to capitalize on emerging markets
5. Industry consolidation/transition
6. Energy shocks
7. Execution of strategic transactions
8. Cost inflation
9. Radical greening
10. Consumer demand shifts

13. Top 10 risks at 2009
1. The credit crunch
2. Regulatory and compliance
3. Deepening recession
4. Radical greening
5. Non-traditional entrants
6. Cost cutting
7. Managing talent
8. Executing alliances and transactions
9. Business model redundancy
10. Reputation risk

14. Top 10 risks at 2010
1. Regulatory and compliance
2. Access to credit
3. Slow recovery/double-dip recession
4. Managing talents
5. Emerging markets
6. Cost-cutting
7. Non-traditional entrants
8. Radical greening
9. Social acceptance risk / CSR
10. 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