I recently just finished giving a talk at the Warburg Pincus IT conference in New York on operational risk (OR) and BI – basically what OR is and how BI can help not only monitor it but also manage and mitigate it. Here are the highlights of that talk...
First what is operational risk? According to the Office of CC (insert link), these are defined as:
1. Internal fraud – perpetrated by your employees
2. External fraud – perpetrated by your customers, suppliers, distributors, etc.
3. Failed business processes or procedures
4. Failed HR processes or procedures
5. Liabilities around products or services offered.
How does BI mitigate, monitor or even eliminate some forms of OR?
1. By identifying the OR risks a bit faster than we can do today. If we can detect and stop fraud – whether internal or external – just a little bit faster than in recent history – then we have mitigated the risk associated with it quite a bit.
2. By using sophisticated analytical models to predict potential OR events or situations – sophisticated models of operational risk – causal models, trending and patterning models, even statistical models that indicate the likelihood of OR events happening are being developed today to help with future situations
3. Using these predicative capabilities, we can reduce OR by giving our front line workers the knowledge and intelligence to recognize OR much faster with the added bonus of giving them insight (using the even more futuristic guided decision making) into how to react to and handle the risk.
BI has a tremendous role in mitigating or even eliminating it before it takes root in your organization. However, it will require a new paradigm for BI – the use of these vastly more sophisticated models, pattern recognition, predictive analytics, and guided decision making technologies. The era of in which simple multidimensional analysis is king may be coming to an end!
Posted May 20, 2005 3:33 AM
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Hi Claudia,
I've been a long time fan of yours and the Corportate Information Factory. Currently I work for a firm that specializes in Predictive Analytics and the area you mention above is one that I've been exploring further. Where can I find additional information covering this area further?
Thanks much,
Claudia Kuzma
Thanks for your questions, Claudia (yes, another one!). I found many web sites on operational risk and will list a few of them here:
1. BearingPoint (www.bearingpoint.com) has a good article entitled SOS for Financial Institutions: Stop Excessive Spending on Risk and Compliance
2. DM Review (www.dmreview.com) has many articles on operational risk and performance operations.
3. BizIntelligence Pipeline (www.bizintelligencepipeline.com) also has articles that may be useful.
4. CIO Magazine (www.cio.com)had an article in their risk management section titled "Bound to Fail" that I found interesting.
5. Finally a great source is the Office of the Comptroller of the Currency (www.occ.treas.gov). Many good articles and white papers on operational risk.
Anyone else have some suggestions?
I'm the editor of a magazine, "Operational Risk"! We write about all of the issues around the implementation of op risk under the Basel II regime, as well as business continuity, enterprise wide risk management, financial crime, and corporate governance. The web site is www.operationalriskonline.com, and you can register there for a free trial.
Hope that's helpful...Ellen
Thanks, Ellen. I will check out your magazine. Sounds like a good one for all of us dealing with this difficult and ill-defined situation. Thanks for the comment.
Don't forget us for the latest on Operational Risk Management!
http://operationalrisk.blogspot.com
Thanks,
Ed