With over 10 years' experience, Sergio Scandizzo, one of the most knowledgeable operational risk professionals in the business, highlights the requisite set of skills and competencies that a successful operational risk manager must possess and discusses the key requirements of the role, including:

• how to write an operational risk policy
• developing strong working relationships with senior management, front and back office staff, IT, compliance and audit professionals
• advising management on the identification and mitigation of operational risks
• embedding a culture of risk management throughout the business
• developing, maintaining and reviewing a risk management framework

Written exclusively from the perspective of an operational risk manager, the focus of this report is always on describing practical ways to get the job done, backed up with real-life examples of everything that is discussed. It provides you with a solid understanding of the tools and techniques of identifying, managing, reporting and monitoring operational risk.

The report looks at current developments affecting the role of the op risk manager including Basel II, capital measurement and allocation, and concluding with an assessment of how the op risk manager's role is likely to evolve within the next 15 years.

This concise, practical report talks to practitioners in their own language with plenty of identifiable examples of day-to-day scenarios. This is essential reading not only for operational risk managers and analysts but also management consultants, internal and external auditors and compliance officers looking to move into this area or needing to learn more about the op risk manager's role.

Acknowledgements

Author Biography

List of Figures and Tables

Prologue: The Job Interview

PART I: THE JOB DESCRIPTION

1 A Day in The Life
9:00 am: Key risk indicators
10:00 am: Meeting with internal audit
11:00 am: Briefing with the CRO
Incident in FX management
Percentage of exotic transactions in derivative portfolio
12:00 pm: Videoconference with subsidiary's operational risk manager
14:00 pm: Message from the supervisors
16:00 pm: Study on third-party liability
17:00 pm: Presentation to commercial banking unit
18:00 pm: New product approval
Conclusion

2 The Operational Risk Function
Do I have to manage anything?
Operational risk and internal Audit
Operational risk and compliance
Operational risk and business continuity
You can do everything, but you cannot do it alone
Are you "adding value"?
Why manage operational risk?
Nobody expects the Spanish inquisition
Options and the law of requisite variety

PART II: TOOLS OF THE TRADE: LIFE UNDER BASEL II

3 Risk Management for Beginners: The Operational Risk Policy
Definition
Operational risk
Operational event
Operational loss
Key risk indicator
Operational risk management framework
Risk appetite
Roles and responsibilities
Board of directors
Senior management
Operational risk function
Internal audit
Compliance
Operational risk committee
New product approval
Operational risk management framework
Risk identification
Risk assessment
Risk monitoring and reporting
Risk control and mitigation
References

4 Risk Identification
Introduction
Objectives of risk identification
A methodology for risk identification and mapping
Case studies
Conclusions
Acknowledgements
References

5 Risk Assessment and Capital Allocation
Risk measurement and capital allocation
The Basel II approaches to operational risk measurement
Basic indicator approach
Standardised approach
Advanced measurement approaches (AMA)
General standards
Qualitative standards
Quantitative standards
Advanced measurement approaches (AMA)
Scenario analysis
Probability assessment
Impact assessment
Historical data
Business and control environment - KRIs and scorecards
Acknowledgements
References

6 Reporting
Reporting operational events and losses
Reporting results of self-assessment
Reporting KRIs: the operational risk scorecard
Reporting for top management
What
When
How
Lightness
Quickness
Exactitude
Visibility
Multiplicity
Consistency
References

PART III: SPECIAL TOPICS IN CALAMITY PHYSICS

7 The Management of Extreme Risks
The meaning of strategy
Risk definitions
High severity events
Scenario analysis for extreme events
References

8 Financial and Other Disasters
Three case studies
Scenario 1 - Lending and investment banking
Scenario 2 - Trading
Scenario 3 - Trading, continued
Thinking the unthinkable
References

″This is the best book on financial risk management I have read in a long time. If you work anywhere in the middle office, read it.″
Glyn Holton, Contingency Analysis

″I found the book very interesting and I appreciated the way it exposes the current issues and problems in risk management. The large number of case studies makes the book even more precious.″
Alfonso Dell'Isola, Partner, PricewaterhouseCoopers

″Operational risk measures and monitors the firm's internal coordination costs. This Guide gives operational content to this broad definition. Scandizzo skillfully walks the reader through the intricate web of issues and tasks that fall under the jurisdiction of a bank's operational risk manager. Special care is given to Basel II, the Big Bang in operational risk management.″
Michele Fratianni, CIBER Eminent Faculty Fellow, Indiana University, Kelley School of Business, Bloomington, Indiana (USA) and Professor of Economics, Università Politecnica delle Marche, Ancona (Italy)

Sergio Scandizzo is head of the Operational Risk Unit at the European Investment Bank (EIB) in Luxembourg. Prior to his position at the EIB he was senior manager in the London office of PricewaterhouseCoopers and, prior to that, a senior manager of the Operational Risk Group at the Canadian Imperial Bank of Commerce in Toronto. He holds degrees in computer science and finance.
Sergio was a contributing author to the award-winning Risk Books title Advanced Measurement Approach to Operational Risk, edited by Ellen Davis. He is also the author of several journal papers on the subjects of fuzzy logic, genetic algorithms and risk management.
Sergio is the author of The Operational Risk Manager's Guide also published by Risk Books.