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Governance, Risk, and Compliance Handbook: Technology, Finance, Environmental, and International Guidance and Best Practices by Anthony Tarantino

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CHAPTER 16

OPERATIONAL RISK MANAGEMENT USING QUANTITATIVE METHODS

Deborah Cernauskas, PhD

Koti Ancha, Six Sigma Black Belt

16.1 INTRODUCTION

16.2 DEFINING OPERATIONAL RISK

16.3 DEFINING QUANTITATIVE ANALYSIS (QUANTITATIVE METHODS)

16.4 ADVANTAGES AND DISADVANTAGES OF USING QUANTITATIVE METHODS

16.5 OPERATIONAL RISK ASSESSMENT AND MANAGEMENT—ESSENTIAL COMPONENTS

(a) Identify Key Processes

(b) Identify and Assess Risk

(c) Failure Modes and Effects Analysis

(d) Business Process Modeling and Simulation

(e) Application: Front Office Systems for a Proprietary Trading Firm

(f) Trading Room Operational Risks and Risk Management

(g) Business Process Model for a Trading Room

(h) Evaluating System Changes Using Business Process Modeling Software

(i) Conclusion

16.6 QUANTIFY OPERATIONAL RISK

16.7 MONITOR AND CONTROL OPERATIONAL RISK

16.8 CHANGE MANAGEMENT

NOTES

REFERENCES

16.1 INTRODUCTION

The Merriam-Webster English Dictionary defines risk as "The possibility of loss or injury" or "Someone or something that creates or suggests a hazard." Risk management is the process of identifying, measuring, or assessing risk and then developing strategies to manage/mitigate the risk.

Even though the word risk has a negative connotation, the outcome of taking risks can be either positive or negative. Individuals and corporations take calculated risks to achieve their goals and objectives. There are several types of risks that are identified with different industries or organizations (i.e., market, credit, ...

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