Risk Technology Awards 2018: The Analytics Boutique

TheAnalyticsBoutique

Op risk modelling vendor of the year
Op risk scenarios product of the year

The Analytics Boutique (TAB) offers a comprehensive suite of operational risk models, as well as a scenario analysis platform and model validation tools. 

OpCapital Analytics provides institutions with all the operational risk modelling functionality they need to gain a deep understanding of their exposures and potential losses. The software supports the modelling and integration of four key data elements – internal loss data, external loss data, scenario analysis, and business and environmental internal control factors – to create an estimate of economic and regulatory capital requirements and to forecast loss under stress scenarios.

In December 2017, TAB introduced Structured Scenario Analysis (SSA), a web platform that manages risk scenario analysis for capital modelling and risk mitigation. SSA provides flexible questionnaires for scenario planning where potential risk scenarios can be identified, voted on and ranked by a panel of experts. Institutions can customise the questionnaires to specific scenarios, with a variety of question types, such as open or closed, as well as various formats for loss estimates. Support data, case studies or other information to help experts with loss estimates can be included. Seed questions, where the answer is known only to the scenario administration team, can be embedded into questionnaires to gauge experts’ skills in evaluating uncertain risk and thus weight their answers accordingly. SSA also includes a number of techniques to mitigate cognitive biases in the experts’ risk evaluations such as group thinking and deferring to authority.

SSA manages the workflow of the scenario evaluation process, scheduling workshops and individual questionnaires. The scenario administrator can enter SSA, view any expert questionnaire at any time and take further action, such as requesting more detail or calling additional meetings. 

A causal factor model calculates a transparent cross-scenario correlation matrix from the experts’ answers. User-friendly web-based analytics enable experts to calculate loss distribution and capital estimates given loss estimates. The experts can visualise the impact on risks of introducing mitigation plans, controls or insurance, and calculate the net present value (NPV) of such actions for justifying the required investment. 

TheAnalyticsBoutique
(l–r) Jose Suca, Rafael Cavestany, Daniel Rodriguez and Vijay Krishnaswamy

To reduce correlation matrix size and Monte Carlo simulation demands for large institutions with multiple business units, SSA supports a stepped aggregation process, where scenarios can be first aggregated by risk type to get the total risk of a business unit or legal entity, then by group of entities to obtain their total risk and, finally, by all groups of entities to obtain a single loss distribution for the institution. The number of aggregation steps is flexible and almost unlimited. Five major institutions are already using SSA, with three more testing it. 

OpCapital Analytics and SSA include modules for exhaustive model validation with functions such as one-click model replication, audit trail, modelling journal and parameter sensitivity analysis. Regulatory approval reports including all information required by an external analyst to replicate the model can be generated by a single click.

To ensure users are in full control of the modelling process, and to avoid its software being perceived as a ‘black box’, TAB publishes its modelling methods extensively. With the same philosophy in mind, the company – unusually – also opens its source code to its users.

Rafael Cavestany Sanz‑Briz, founder and chief executive officer of TAB says: “SSA is a web-based platform that collects and manages risk scenario analysis for capital modelling and risk mitigation, maximising results quality and process efficiency. It provides full workflow, with on‑the‑fly user‑friendly modelling and Monte Carlo simulation permitting the monetisation of risk estimates, rather than traditional traffic-light maps. With monetised risk estimates, SSA calculates the NPV of the introduction of mitigation plans and insurance policies directly linking risk measurement with risk management. SSA permits the calculation of rigorous and stable capital requirements, reflecting calculated cross-scenario robust correlations. Finally, SSA is designed to mitigate cognitive biases implicit in judgement-based risk evaluations.”

Judges’ comments

TAB has extensive operational risk modelling functionality, many users and a good reputation”

TAB offers detailed, comprehensive and advanced functionality”

TAB has a clear product proposition with many users and good references from the market”

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