Speaking at GCOR III (Global Conference on Operational Risk III) in Boston this week, Algorithmics, the world’s leading provider of enterprise risk solutions, discussed the operational risks behind the credit crisis and identified some key improvements to operational risk best practice as an important part of the solution.
Penny Cagan, managing director, Credit and Operational Risk Content, Algorithmics, and recently recognized as one of the Top 50 Faces of Operational Risk, said: “We have found in our research a profound connection between the supply of credit, market volatility and emergence of long standing operational risk frauds and market events. What this suggests is that it is important to manage risk across all risk silos and to finally stop thinking about types of risk in isolation to each other."
In Algorithmics’ view, operational risk best practice is part of the solution and the key improvements Algorithmics identifies include:
– Manage risk on a enterprise wide basis and eliminate silos
– Integrate the traditional operational risk disciplines of risk identification, self assessments, monitoring and testing of controls, within the enterprise-wide risk framework
– Look at all material risks together, and not be limited to market, credit, liquidity and operational risk
– Understand assumptions and what happens when assumptions fail, or are inadequate in their scope
– Integrate scenario approaches within overall framework, using scenarios that are realistic for normal market conditions, but also incorporate extreme events
– Lobby to change an organization’s culture
– Supplement quantitative tools with qualitative judgment.
