Introduction to operational risk management

At a macro-level, a country's economy is dependent on processes in government, industrial, service and infrastructure sectors running smoothly and efficiently. When they do not for example, as a result of natural disaster, industrial action or a major financial crisis an economic price is paid in terms of lost competitiveness, increased running costs, lower future growth expectations, unemployment or even recession.

At a micro-economic level, individual organizations also face the risk that their activities and processes may be disrupted unexpectedly or fail to meet expected performance levels. Recent high profile failures Barings, Piper Alpha and Exxon Valdez have focused attention at every level on the importance of risk management. The consequences of failures and disruption on performance may be more or less severe running from minor losses arising from processing backlogs, reduced customer service quality, loss of reputation, and in the extreme, to bankruptcy.

What is clear at a boardroom level is that strong risk management is an essential part of good corporate governance and something that helps to protect shareholder value. There is also a growing recognition of the need to ensure that an effective framework of management controls and supervision is in place. This view is reflected in the attention that is being placed on risk management by regulators and listing authorities around the world.

The aim of operational risk management the subject of this book is to ensure that the varied exposures to operational risk...