Page 93 - Risk Management in current scenario

Factor: Factor: Preventive
System Process Control Financial

Cause resulting Events leading Conseouencele Customer
to "Events" to conseouence ading Losses

Factor: External Factor: Detective Reputational
Events People Control
Controls are
place on Causes

Cause

It is important to realize in the definition of operational risk that the cause
is the building block of resulting risks;"cause" leads of "event" and event
leads to "consequence", the consequence could be leading to loss in
financial terms, reputational terms or customer terms. The same is
described in the figure below:

The cause is resulted by one or more out of the four factors, it is not possible
to control the event; the only control able factor is the cause, consequence
is the outcome.Consequence may be controlled either by controlling cause
or, directly by applying the risk mitigation techniques. So the focus in the
operational risk management is on controlling the cause or resulting
consequences through risk mitigation technique.

Events

The Basel Committee have classified operational risk events into the seven
categories as below
1. internal fraud
2. external fraud

3. execution delivery and process management
4. client products and business practices
5. accident and natural disaster

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