What is operational risk management methods for this category

A single universal interpretation, what really is operational risk, does not exist today. In the most generalized and approximate form this category can include direct, as well as indirect, costs incurred by an organization due to flaws in the management, control, and support system. And in this context, the risk of loss of reputation is not taken into account.

Most often, the competent management of operational risks is required by Russian banking institutions. Their leadership is well aware that without an adequate assessment of the dangers and measures to prevent them, huge losses are possible, which pose a real threat to financial stability.

Thus, operational risk in the case we are considering is subject to mandatory management. It is based on the so-called process approach, the provisions of which stipulate that a correct analysis of events, as well as forecasting losses (losses) is possible only if the operational risks of the bank are classified according to a number of characteristics: • object - the process, during which the occurrence of an event representing a danger was recorded;
• source - the reason that led to the occurrence of an undesirable situation;
• Variety of losses - type of values that were lost by the banking institution;
• structure element - the unit in which a negative event took place.

To assess the possible operational risk, Russian financial institutions use a number of methods:

• score-weight, or evaluation cards;
• BIA - standard indicative procedure for calculating capital requirements;
• Analytical - means assessing the hazard according to its own event database, which may also include drawing up its map;
• scenario analysis or modeling.

Ways to solve the problem

Obviously, any bank dreams of being able to regulate, and also minimize, the operational risk. And for this purpose it is expedient:
• Accept - it means that an organization has to reconcile itself to the fact that an operation or process is inseparable from a particular hazard due to the extremely low benefit that corrective actions can provide.
• Reduce or restrict - the implementation of the aforementioned activities. By the way, their standard list is set at the highest level. In our case, for example, we are talking about the bank's board.
• Transfer - transfer of a part of the hazard to third parties. For example, an insurer or an outsourcing company.

In special cases, risk cancellation is allowed. The choice of one or another strategy of behavior depends on the severity of the possible consequences for both the capital of the financial organization and the frequency of events.

The internal control system remains the main instrument to combat possible losses . It is needed just for the implementation of preventive actions, but not to ascertain the fact of the onset of an undesirable event. This system must necessarily be part of the overall culture of control (operational). Only in this case can we hope for a favorable development of events within the organization.