DEPARTMENT OF FINANCE, RISK MANAGEMENT AND BANKING
OPERATIONAL RISK MANAGEMENT RSK4801
Topic 1: Overview of Operational Risk Management
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RSK4801/1/2012 - 2015
TOPIC 1: OVERVIEW OF OPERATIONAL RISK MANAGEMENT AIM The aim of this topic is to introduce students to Operational Risk Management and the benefits that can be derived from effectively implement an operational risk management framework.
LEARNING OUTCOMES At the end of this topic, the student will be able to: argue the definition operational risk; argue the definition enterprise risk management; analyse and argue the interrelationships between different risk types; analyse and argue the cause and effect relationship; and evaluate the operational risk management framework.
TOPIC CONTENT Study Unit 1: The focus on risk management Study Unit 2: The business case for operational risk management
OVERVIEW The 1 topic gives a brief introduction and overview of operational risk management. The topic will form the basis for the rest of the course. It is also important to pay attention to the case studies included in the study units as it gives a good background on real life experiences and provides insight in what can go wrong and how companies mismanaged, managed and prevented incidents. st
STUDY UNIT 1: THE FOCUS ON RISK MANAGEMENT CONTENTS Aim Key concepts Learning outcomes Learning material Assessment Summary
AIM The aim of this study unit is to provide students with an overview of risk management and operational risk in particular.
KEY CONCEPTS Operational risk Sub-categories of operational risk Enterprise risk Cause and effect Operational risk management framework
LEARNING OUTCOMES Students must be able to: argue operational and enterprise risk management; argue the interrelationship of risks; analyse and the cause, effect and consequence chain; and evaluate the operational risk management framework.
LEARNING MATERIAL 1.1. The prescribed learning material
This study unit is based on Chapter 1 of the prescribed book. 1.2. What is risk?
Risk management is not a new concept. People have experienced events with negative consequences from the beginning of time, whether it was the hunter that could have been attacked by carnivores or other hunters or in more modern times, organisations that introduced measures to safeguard its assets. There are many examples that can be listed, whether in one’s personal life, experienced by communities, countries or by businesses.
The events are referred to as risks. The possibility that something can go wrong will always exist and therefore the need to manage risk. To do that, it is important to understand and define what is meant by risk and to classify different types of risk.
The different types of risk is also managed differently and from a regulatory perspective, banks and other regulated financial institutions must meet different regulatory capital requirements for the different types of risk. It is therefore important for a business to define its risks and to ensure it is used consistently throughout the organisation. For the purpose of this course, the Basel definition of operational risk will be used. Refer to the definitions in paragraph 1.3. Read the section on “The road to operational risk” in the prescribed book. Study the section on the “What do we mean by operational risk?” in chapter 1 of...
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