Operational risk management
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2008-06-26T11:28:34Z
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/* See also */
In [[business]], the term '''Operational Risk Management''' (ORM) is the oversight of many forms of day-to-day [[operational risk]] including the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk does not include [[market risk]] or [[credit risk]].
==Benefits of ORM==
# Reduction of operational loss.
# Lower compliance/auditing costs.
# Early detection of unlawful activities.
# Reduced exposure to future risks.
==Categories of Risk==
The [[Basel Committee on Banking Supervision]] breaks down loss events into seven general categories:
===Internal Fraud===
Loss due to acts of a type intended to defraud, misappropriate property or circumvent regulations, the law or company policy, excluding diversity, discrimination events, which involves at least one internal party.
===External Fraud===
Losses due to acts of a type intended to defraud, misappropriate property or circumvent the law, by a third party. These activities include [[theft]], [[robbery]], [[hacking]] or [[phishing]] attacks.
===Employment Practices and Workplace Safety===
Losses arising from acts inconsistent with employment, health or safety laws or agreements, from payment of personal injury claims, or from diversity / discrimination.
===Clients, Products & Business Practice===
Losses arising from unintentional or negligent failure to meet a professional obligation to specific clients (including fiduciary and suitability requirements), or from the nature of design of a product.
===Damage to Physical Assets===
Losses arising from loss or damage to physical assets from natural disaster or other events. See [[disaster recovery]] or [[business continuity planning]].
===Business Disruption & Systems Failures===
Losses arising from disruption of business or system failures. This includes loss of due to failure of [[computer hardware]], [[computer software]], [[telecommunications]] failure or utility outage and disruptions. See [[disaster recovery]] or [[business continuity planning]].
===Execution, Delivery & Process Management===
Losses from failed transaction processing or process management, from relations with trade suppliers and vendors. This includes Transaction Capture, Execution & Maintenance Miscommunication, Data entry, maintenance or loading error Missed deadline or responsibility, Model / system misoperation
Accounting error, entity attribution error, Delivery failure, Collateral management failure
Reference data maintenance, Monitoring & Reporting Failed mandatory reporting obligation, Inaccurate external report (loss incurred), Customer Intake & Documentation Client permissions / disclaimers missed
Legal documents missing / incomplete, Customer / Client Account Management Unapproved access given to accounts, Incorrect client records (loss incurred), Negligent loss or damage of client assets, Trade partners, non-client vendor misperformance and vendor disputes.
==ORM Software==
The impact of the [[Enron]] failure and the implementation of the [[Sarbanes-Oxley Act]] has caused several software development companies to create enterprise-wide software packages to manage risk. These software systems allow the [[financial audit]] to be executed at lower cost.
[[Forrester Research]] has identified 115 Governance, Risk and Compliance vendors that cover operational risk management projects.
==See also==
* [[Benefit risk]]
* [[Cost risk]]
* [[Operational risk]]
* [[Optimism bias]]
* [[Audit]]
* [[Bribery]]
* [[Political corruption]]
* [[Insurance]]
* [[Fraud]]
* [[Risk]]
* [[Risk management]]
* [[Basel II]]
* [[Key Risk Indicator]]s
* [[Solvency II]]
==References==
* [http://www.riskexpertise.com/papers/risk.pdf Defining Risk by Glyn Holton]
[[Category:Risk]]