ABSTRACT
Operational risk profiling in banking organizations describes actual exposure to all types of operational risks that they face. The analysis of the operational risk profile is essential in designing and implementing effective operational risk management systems. In this analysis, the values of operational risks and their associated losses are distributed into two-or three-dimensional spaces. These spaces are defined by the values of the operational risk probabilities, their impacts, and their exposures. Exposure to operational risks means the actual degree of severity of the operational risk that a bank faces. This chapter defines how to estimate the values referring to probability and impact based on the analysis of the operational risk causes, events, and consequences. This analysis mainly focused on the correlations, significance, actual, and loss values. Based on the distribution analysis of the operational risk values within the probability and impact axes, the degree of exposure is defined. Moreover, the monitoring of the operational risk profile is presented. Some main aspects, such as the deviation and curves used for evaluating the operational risk profile
as well as the controllability zones and distribution tails, are examined. A methodology called clustering operational risk profile is used to identify, model, and evaluate the operational risks and construct the decision rules for their management. The monitoring of the operational risk profile, based on fuzzy clustering and fuzzy logic techniques and methodologies, is also discussed. The use of these models in the construction of the decision-making rules is further described. Fuzzy set theory is also used to define the linguistic membership functions. These advanced approaches for decision making are implemented in two different cases of operational risks in banking organizations. Advanced graphical representations of the results are presented and discussed extensively. The goal is to show the steps of the operational risk profiling analysis and their applicability in the construction of decision-making processes used in operational risk management systems. Figure 7.1 illustrates the main elements that make up Chapter 7.
