Op risk can learn from Berlin's renaissance


First of all, it confirmed for me the fact that operational risk executives need to buckle down and get to grips with the whole business process concept. Those little boxes with squiggly lines connecting them can be very enlightening. And the proof of the pudding is definitely in the eating – many financial services firms presented, and the successful projects they undertook reduced operational risk, losses and improved financial performance of the business.

This makes me think there may be a place in the operational risk pantheon of approaches – including internal and external data, self-assessments, KRIs and scenarios – for business process analysis and improvement. After all, if the whole point of op risk is to reduce and mitigate losses, then it makes sense to start bolting on methodologies that achieve this aim.

Indeed, the conference made me think more about the future of operational risk and what shape that should take. Berlin, in some ways, was a real metaphor for this internal debate – as a city, it is in the process of reinventing itself after a long and troubled history. Think of everything the 20th century inflicted on it. Operational risk executives have had it pretty easy in comparison.

And today, sparkling new buildings – interesting, stylish buildings – are rising up. I'm no fan of modern architecture but the buildings in Berlin are some of the best I've seen. It's a city reinventing itself, and in a very exciting, dynamic way.

So how does this relate to operational risk? To me, analysing business processes seems the equivalent of analysing the different components of credit or market risk. It makes sense, and the end product should deliver value to the firm.

What other methodologies should operational risk be bringing into its family of disciplines? What else can be bolted on to the current quintuple of approaches – or indeed perhaps substitute or expand upon one of those approaches – to help operational risk evolve? What should the discipline be seeking to evolve into?

Ellen Davis

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Investment banks: the future of risk control

This Risk.net survey report explores the current state of risk controls in investment banks, the challenges of effective engagement across the three lines of defence, and the opportunity to develop a more dynamic approach to first-line risk control

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