DEPARTMENT OF FINANCE, RISK MANAGEMENT AND BANKING
OPERATIONAL RISK MANAGEMENT RSK4801
Topic 2: The Principles and framework for Operational Risk Management
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RSK4801/1/2012 - 2015
TOPIC 2: THE PRINCIPLES AND FRAMEWORK OF OPERATIONAL RISK MANAGEMENT AIM The aim of this topic is to discuss the theoretical basis of the operational risk management framework.
LEARNING OUTCOMES At the end of this topic, the student will be able to: critically evaluate and discuss the role of the board of directors and its sub-committees with regard to risk management in a regulatory and corporate governance context; identify and assess risks, evaluate the adequacy of controls and evaluate the roles and responsibilities of the different role-players in the risk and control assessment process; distinguish between event types; describe data attributes to record complete, relevant and accurate data to assist in the analysis of events and discuss the use of events to manage operational risk; distinguish between risk and performance indicators and key risk indicators, discuss the requirements and characteristics of risk indicators and the uses of risk indicators; and discuss the principles to develop reliable and relevant operational risk management reports and critically evaluate an operational risk management report with respect to relevance to different user groups.
TOPIC CONTENT Study Unit 3: Governance Study Unit 4: Risk and control assessment Study Unit 5: Events and losses Study Unit 6: Indicators Study Unit 7: Reporting
OVERVIEW This topic discusses the theoretical basis for the operational risk management framework in more detail. It covers the regulatory and corporate governance framework in the South African context. Study Units 4 to 7 discuss the steps in the operational management process.
STUDY UNIT 3: GOVERNANCE
CONTENTS Aim Key concepts Learning outcomes Learning material Assessment Summary
AIM The aim of this study unit is to discuss governance as part of the operational risk management framework.
KEY CONCEPTS Corporate governance Operational risk management policy Operational risk appetite Operational risk tolerance Companies act King report on corporate governance
LEARNING OUTCOMES Students must be able to critically evaluate and discuss the role of the board of directors and its sub-committees with regard to risk management in a regulatory and corporate governance context.
LEARNING MATERIAL 3.1. The prescribed learning material
This study unit is based on Chapter 3 of the prescribed book. 3.2. Introduction
Corporate governance is regarded as one of the key elements to ensure effective risk management. The Organisation for Economic Cooperation and Development (OECD) established a committee to investigate the impact and failures and weaknesses in corporate governance on the 2007 financial crisis.
An important lesson of the study was the failure of risk management at a number of financial and non-financial companies. It appears that the focus of those companies have been on the internal controls for the purpose of financial reporting, which resulted in the separation of risk management from the corporate strategy and its implementation. Other relevant key points in the study relating to risk management were that: The widespread failure of risk management came as a surprise. Risk was not managed on...
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