The Knowledge Exchange / Risk Management / A better way to manage risk

A better way to manage risk

An interactive Harvard Business Review webinar that will change how your organization thinks about risk

The risk management approaches used by many organizations haven’t effectively mitigated crucial risks. BP made safety a top priority, only to be involved in one of the worst man-made disasters in history. And several financial firms had risk management activities that didn’t prevent them from experiencing disastrous results in the 2007/08 financial crisis.
 
In their June 2012 article in the Harvard Business Review, Harvard Business School professors Robert S. Kaplan and Anette Mikes described many of the problems with typical risk management approaches and offer a systematic approach to improve the effectiveness of risk management.
 
In this interactive Harvard Business Review webinar, Kaplan and Mikes will discuss the key ideas in that article. They will explain the importance of:
 
  • Understanding the common errors organizations make in attempting to manage risks, including overconfidence, group-think, and escalation of commitment.
  • Categorizing risks as controllable (which should be eliminated or avoided), external (which can be anticipated and planned for), and related to generating superior returns (which can be managed through tailored approaches).
  • Choosing the right approach to discuss risk within an organization.
  • Avoiding the function trap, linking risk management with strategy, and identifying and managing risks on an organization-wide basis.
Previously Professor Kaplan co-created the Balanced Scorecard, the widely used management system. In this article, he and Professor Mikes co-create a system that will help organizations dramatically improve management of risks.
 
If your organization faces potential risks that could kill the company, and if you have responsibility for managing this risk, join Professors Kaplan and Mikes on June 6 to gain important insights that will change how your organization thinks about risk. A one-hour investment will benefit your organization for years to come.
 
 
Wednesday, June 6, 2012
12:00 p.m. – 1:00 p.m. EST
 

 

 

 

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4 Comments

  1. Maha KACEM
    Posted June 22, 2012 at 4:27 am | Permalink

    Bonjour Monsieur,

    Je suis très intéressée par la quantification du risque opérationnel. S’il vous plaît, dites-moi comment on peut modéliser le risque opérationnel et quel est le modèle pratique qu’on peut adopter pour déterminer le capital économique pour ce risque? Si vous pouvez monsieur, renseignez-moi s’il vous plaît sur les documents de référence sur cette question?

    Merci d’avance
    Tout mon respect
    Maha KACEM
    ************************************
    Translation via Google Translate:
    Hello Sir,

    I am very interested in the quantification of operational risk. Please tell me how to model operational risk and what is the practical model that can be adopted to determine the economic capital for this risk? If you can sir, ask me please to reference documents on this issue?

    Thank you in advance
    All my respect
    Maha KACEM

  2. Clark Abrahams, Chief Financial Architect, SAS
    Posted June 23, 2012 at 8:54 am | Permalink

    Question: I am very interested in the quantification of operational risk. Please tell me how to model operational risk and what is the practical model that can be adopted to determine the economic capital for this risk? If you can sir, ask me please to reference documents on this issue?

    Answer: Your question is simple, but the answer is less so. I will attempt to summarize. Operational risk management involves both quantitative and qualitative elements. An appropriate model is necessarily a hybrid one that combines the best of judgment and science. Included in the qualitative part is a control self-assessment that looks at the adequacy of internal controls designed to address various operational risks, and expected loss frequency and severity. Policies are examined for adequacy of coverage and associated procedures for their effectiveness and reliability. On the quantitative side, loss events are captured and future exposure is estimated in the form of a loss distribution. The expected loss component covers high frequency, low severity loss events, whereas the reverse is true for the unexpected loss events (economic capital covers these unexpected losses and is the difference between the chosen quantile and the mean of the loss distribution). These calculations are made using both internal and external loss data, i.e. from both a bottom-up and top-down perspective. Risk capital can be calculated as a value-at-risk (VaR) measure at a proscribed confidence level and time period under a distributional assumption, e.g. normality. Key risk indicators, and regression models composed of them, can provide early warning on potential losses, control failures, etc. Other quantitative approaches include Bayesian networks, fuzzy logic, Monte Carlo simulation, causal networks, earnings volatility models, actuarial methods combining frequency and severity distributions via a stochastic convolution process, etc. There are entire books devoted to specific approaches, each having their advantages and drawbacks/limitations. I hope this helps you on your path to learning more about operational risk quantification, modeling, and management.

    I’ve gathered some good references, which my colleague Waynette Tubbs (the editor of the Risk Management Knowledge Exchange) will send to you via email as they cannot be attached here.

    Kind Regards, Clark Abrahams

  3. Michael
    Posted July 11, 2012 at 3:14 am | Permalink

    Hi thanks for the information, would you please share this information(as shared with Maha KACEM) and reference documents to me as well? Regards, Michael CRO, Bank of Namibia.

    • Waynette Tubbs, Editor
      Posted July 11, 2012 at 6:38 am | Permalink

      Certainly, Michael. I’ll send this to you right away.

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