Introduction & Overview Paulus Tangkere Operational Risk Analysis Session 1

pt Course Goals This course is designed to help students understand the operational risk and analyze its applications in real organizations using the practical framework of identifying, assessing and managing operational risk.

pt Course Objectives To develop an understanding on operational risk, how it can be measured and transferred, why both individuals and corporations care about operational risk. To improve skills to apply the operational risk management process to major areas of concern for organizations: operational excellence, in some detail. To gain experience with steps in using the practical framework in identifying, assessing and managing operational risk in a real organizations. By the end of semester, students should analyze and present in class an operational risk analysis in a real organization.

pt Syllabus 1.Introduction and Overview 2.Operational Risk Management 3.System Operation Analysis 4.Operational Risk Identification 5.Operational Risk Analysis 6.Operational Risk Evaluation 7.Review I

pt Syllabus-cont 8.Operational Risk Assessment Tools 9.Operational Risk Treatment 10.Implementation and Improvement System 11.Group Presentation I 12.Group Presentation II 13.Group Presentation III 14.Review II

pt References Chapman, Robert J., Simple Tools and Techniques for Enterprise Risk Management. John Wiley & Sons, ISO 31000: Risk Management – Principles and Guidelines. First Edition. ISO, ISO 31010: Risk Management – Risk Assessment Techniques. Final Draft. ISO, 2009 Milliman Research Report, Operational Risk Modeling Framework, February, 2013.

pt Methodology Lectures Readings Case Studies Assignments

pt Grading Midterm : 30% Final : 40% Others: 30% – Assignments – individual and group – Class Participation – (Course) Session Summary – Quiz – pretests and posttests

pt Assignment Submission No copy-paste. Submit electronically ( ) – to – Use specified format: kmk-nim/kel-tgs both in Subject and File Name – 2 (two) days before next class. Group Presentations materials – a week before schedule

pt Group Consists of max. 5 students Responsibilities – Distributed – Team – Personal/Individual Internal communications

pt Communication Format: kmk-nim/kel-tgs kmk = kode mata kuliah nim = nomor induk mahasiswa atau kel = kelompok tgs = nama tugas

pt What is Risk? “effect of uncertainty on objectives” (ISO 31000) “ Risk is the chance of an event happening that could lead to unintended effects which will impair the organization’s ability to achieve its objectives”.

pt All activities of an organization involve risk. Organizations of all types and sizes face internal and external factors and influences that make it uncertain whether and when they will achieve their objectives. The effect this uncertainty has on an organization's objectives is “risk”.

pt Causes of Risk Change - The “Mother” of Risk Resource Constraints New Technology Complexity Stress Societal Constraints Environmental Influences Human Nature Speed/Tempo of Operation High Energy Levels

pt Risk Management A Decision Making Tool Increases Ability to Make Informed Decisions Reduces Risks to Acceptable Levels

pt Operational Risk the potential for loss due to failures of people, processes, technology and external dependencies. “Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events” (Basel Committee on Banking Supervision 2004).

pt Customer Confidentiality Failure Settlement Fails Computer Hacking Corporate Actions Losses Terrorist Threats Missing Certificates Fraud Incomplete Due Diligence Data Entry Errors Governance Issues Some Operational Risks

pt Customer Service & Interaction Risk Liquidity Risk Legal & Regulatory Risk Financial Controls & Reporting Risk Key Person Risk Brand Image Risk Employment Practice Risk Infrastructure Risk Security Risk Hardware Risk Business Resumption Risk External Fraud Risk Physical Asset Risk Utility Risk Execution, Delivery & Process Management Risk People & Culture Risk Technology Risk Business Continuity Risk External Risk Operational Risk Categories

Operational Risk Landscape

pt What Operational Risk is Not Credit Risk Market Risk Strategic Risk Operational Risk is NOT LIMITED to the processing-type of risks generally associated with a back-office operation.

pt Hazard: A condition with the potential to cause personal injury or death, property damage, or mission degradation. A condition with the potential to cause personal injury or death, property damage, or mission degradation. ORM Terms

pt ORM Terms Risk: An expression of possible loss in terms of severity and probability.

pt HazardRisk Bad Weather High Probability Flight Ops Cnx Flock of Birds Moderate Chance of Engine Fault Walking on top of Slippery AC Some Chance of Fall Producing Severe Injury

pt Severity: The worst credible consequence which can occur as a result of a hazard. ORM Terms

pt Probability: The likelihood that a hazard will result in a mishap or loss. ORM Terms

pt Operational Risk Management Goal: To optimize operational capability and readiness by managing risk to accomplish the mission with minimal loss.