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A Practical view of Operational Risk (1/3): Introduction

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Executive summary

It is of huge importance for all organisations to consider their operational risks as the impact can be catastrophic if appropriate measures are not put in place and controlled. In order to do this, people should understand why and how we do things, in order to create greater value to their customers.

Key learning objectives:

  • What is OpRisk?
  • Why does OpRisk matter?
  • Why is it important to your business?

In what ways are regulators crushing banks?

  • New demands
  • Far more precise requirements

What is Operational Risk?

The risk of loss resulting from inadequate or failed processes, people and systems from external events.

Why does Operational Risk matter?

  • Scenario: Imagine you have a car crash and it is your fault. There is a direct cost, which is your deductible or excess, this may be £1000. There is also an indirect cost, your discount or no claims bonus, you can end up paying more than 100% of the premium
  • The severity of this is different in banking, in the very worst case you can have your car scrapped, for a bank, shutting down is a far more extreme option

Why is it important for your business?

  • Organisations that want to increase their metrics either invest in creating more value for their customers. When you do that, people talk, the word spreads, and growth happens. Therefore it is important to think about why we do things, and how we do things
  • It is important to note -  Are we increasing value or lowering costs? Producing and designing great processes is what adds value

What are the key takeaways?

  • Process is what helps your business maintain control, build capacity and reduce costs
  • Other things being equal, he with the best process wins
  • It is important to have a ‘Lessons Learned’ process in order to avoid the same issue, or nearly the same issue, happening in another team
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