INTRODUCTION
This workshop is designed to be an introductory or refresher course on the fundamentals of operational risk within all financial services sectors, both Retail and Wholesale.

The sessions will assume a working knowledge of financial services and FSA regulation. It will therefore be of immediate and long term benefit to Risk Managers with less than two years experience and those across the business who are increasingly expected to be aware of operational risk management and control activities including: • Risk • Capital Management • Finance • Operations • Internal Audit • Compliance

WORKSHOP STYLE
The workshop will consist of a series of presentations covering the main elements of operational risk management in today's financial institution. Audience
involvement and questions will be encouraged throughout to ensure those from non-risk backgrounds also gain an understanding of how their role within the organisation interacts with that of operational risk management.

AGENDA

9.00 Registration

9.30 Welcome and Introduction

9.35 Examining the Regulatory and Commercial Background to Operational Risk Management
• The Regulatory background – Basel II and EU directives
• FSA’s Internal Capital Adequacy assessments and the supervisory review process
• The characteristics of operational risk
• The business case for operational risk management

10.15 The Operational Risk Management Framework
• The key elements and characteristics of the framework
• The responsibilities of the different interested parties to the framework
• The manner in which operational risk management interacts with other parties
• The establishment of underlying risk tolerances
• Documentation

10.55 Refreshment Break

11.15 Practical Techniques for the Identification and Assessment of Operational Risk
• Techniques used to identify and manage potential risk exposures in order to prepare for unexpected events:
– The successful use of risk self assessment
– Conducting risk mapping workshops
– Using the output of workshops and self-assessment to build risk scenarios

11.55 Effectively Monitoring the Risk Environment
• Methods for monitoring the environment and practical tips on their use:
– Using internal and external loss data to review and enhance the control framework
– Creating and using Key Risk Indicators
– Reviewing control effectiveness
– Ensuring effective communication of findings

12.35 Lunch

1.35 Understanding Operational Risk Capital Assessment Methodologies for Pillar 1 Purposes
• Calculating capital under the Basic Indicator and Standardised approaches
• An introduction to Advanced Measurement Approaches:
– Loss distribution approaches
– Scenario based approaches
• Factoring in the mitigating effect of insurance
• The role of Pillar 1 models

2.15 Understanding the Purpose and Implications of Pillar 2 Capital Assessments
• The purpose of Pillar 2 assessments and their relationship with Pillar 1 requirements
• The requirement for stress testing and scenario analysis
• Methodologies for developing stress tests and scenario analysis
• Sources of information

3.00 Refreshment Break

3.20 Delivering Value to the Organisation
• The choices available to a business facing operational risk exposures
• The interface with tolerance statements
• Supporting process, system and product enhancement
• Planning to manage extreme scenarios – looking beyond the business recovery plan
• Improving mitigation techniques:
– The insurance programme and potential shortfalls
– Other risk mitigants
– Outsourcing

4.20 Close of Workshop

Endorsed by The Institute of Operational Risk

OBJECTIVES
This operational risk modelling workshop will provide operational risk managers with a general introduction to the issues and methodologies surrounding the question of operational risk quantification and modelling. It is not intended for statisticians or quantitative analysts. It will examine the methods for modelling risk, the terminology used and the sorts of tools which can be used in this quantification exercise.

WHO SHOULD ATTEND
The workshop is designed for:
- Operational risk management professionals within financial services firms who require a practical introduction to the main issues associated with the quantification and modelling of operational risk.
(Please note, it is not intended for advanced level statisticians or quantitative analysts.)

- Individuals involved in developing models, and those interested in understanding the implications of developing a capital number for operational risk. This is likely to include: • Risk • Capital Management • Finance • Operations • Internal Audit • Compliance

AGENDA

9.00 Registration

9.30 An Overview on the Pros and Cons of Operational Risk Quantification and Modelling
• Why is operational risk quantification and modelling still such a challenge
• The characteristics of operational risk
• The main problems of quantifying and modelling operational risk
• Qualitative benefits of modelling operational risk
• The reality of the operational risk capital figure

10.10 Reviewing the Strengths, Weaknesses and Requirements of Differing Approaches
• Basic methodologies and use of proxies
– Basic Indicator Approach
– Standardised Approach
• Basic operational risk terminology
(Drivers, tails, standard deviation etc.)
• Advanced methodologies
– Based on use of data
– Scenario analysis

10.50 Refreshment Break

11.10 An Introduction to the Variables of Operational Risk Modelling
• Reviewing the parameters that will form the basis of a chosen model:
– Frequency
– Impact
– Control effectiveness
– Mitigation of risk
• The importance of each parameter and the issues connected with their use

11.50 Reviewing the Features and Uses of Common Distribution Curves
• What they look like
• What they are used to model
• The data required
• The advantages and disadvantages of each distribution

12.20 Evaluating the Tools for Building an Operational Risk Model
• Addressing the practical question of developing a model
• The tools used in building an operational risk model:
– Using Excel / spreadsheets
– Curve fitting
– Monte Carlo simulation
– Other mathematical approaches

1.00 Lunch Break

2.00 Data Based Modelling: Reviewing the Construction of Models Drawing on Historical Loss Data
• Sources of information:
– Internal loss data
– External loss data
• Issues with data quality
• Scaling
• Procedures for building the model

2.40 Exploring the Issues and Techniques Associated with Scenario Analysis and Stress Testing
• Sources of information
– Internal and external data
– Key Risk Indicators
– Audit and other reports
• Issues and difficulties of stress testing and scenario analysis
• The procedure for developing stress tests and scenarios

3.20 Refreshment Break

3.40 Using the Figures for Capital Adequacy and Qualitative Management
• Models and motivating business units in the improvement of the operational risk profile
• The aims and objectives of capital adequacy
• How modelling helps meet this aim
– Prioritising risk management action
– Assessing costs of corrective action
– Motivating business units through the use of capital

4.15 Close of Workshop