Solutions for a Triumvirate of Seemingly Intractable Problems

Michael Grimwade

Some key elements of operational risk management were either not covered by Basel II or, in the case of reputational risk, positively excluded. So this chapter covers three critical and often misunderstood aspects of operational risk management, namely:

    • managing the operational risks arising from change;
    • approving reputational risk and responding to reputational damage; and
    • escalating issues effectively.

MANAGING THE OPERATIONAL RISKS ARISING FROM CHANGE

“…no plan of operations extends with any certainty beyond the first contact with the main hostile force.”

Field Marshall Helmuth Moltke, commander of the Prussian Army during the Franco-Prussian War

All change initiatives increase the operational risk profile of a firm in the short term and typically also change it permanently, either for better or for worse. For example, the automation of a manual process will reduce a firm’s exposure to execution, delivery & process-management risks but may increase the firm’s exposures to business disruption and systems failure. Change includes cost-reduction initiatives and disposal and wind-down of businesses; the implementation of new technology and channels

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