Synopsis
* In-depth examination of the practical implementation of new approaches to the challenging area of operational risk * Key steps in building consistent operational risk measurement and management * Latest developments in analysing and quantifying operational risk Securities fraud and irregularities - case studies and issues for senior management
Review
This is the most useful publication on operational risk yet. It is valuable both for benchmarking existing risk functions and for providing a focus for the establishment of new ones. Over the past few years, risk managers and financial regulators have been trying to gain a better understanding of operational risk management. Informed guidance on this subject is more than welcome, particularly in a book containing the "10 commandments" of operational risk management. It will certainly become an operational risk bible. The introductory section, by Stephen Kingsley and the team from Arthur Andersen, cover definitions, key concepts and the fundamentals of roles and accountabilities, before leading into a very practical exposition on the issues and problems with measuring operational risk. Douglas Hoffman of Bankers Trust has himself built such an operational risk tool, and in the second introductory paper covers the new trends in measurement, the role of risk indicators and how to build an operational loss database. The remaining 10 articles are widely based and bring together the best cross-section of speakers to be found at a seminar, but with the greater depth of explanation and analysis that has previously been wanting. All the key themes are here: regulatory views, key questions for senior management, the importance of risk culture, and how to go about promoting and embedding risk awareness in an organisation. The combining of these different perspectives in itself provides valuable insight. Different components of operational risk are covered by specific articles on process errors and failures, fraud and irregularities and model risk. The view of measurement is also suitably wide and covers capital allocation, risk profiling and stress measures, both for the quantifiable and unquantifiable. It is hard to pick out individual articles but, for a fresh insight, I was pleased to see the Centre for Organisational Research from the London Business School looking at psychological theory. Cognitive bias and the very nature of decision making were at the core of many of the big operational risk disasters, yet this is only superficially covered in many risk management areas. -- Paul Dorey Barclays Bank
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