ABSTRACT
This chapter provides guidance on when and how banking organizations should plan and schedule their actions and policies used in designing the framework of operational risk management. The first sections of this chapter address planning actions and policies that should be applied for accepting, avoiding, or transferring/mitigating the operational risks. Aspects of scenario analysis, which is used extensively in this part of the operational risk analysis, are also presented. Moreover, guidelines for designing business continuity or contingency plans, which are widely used to deal with operational risks having a high degree of impact, are presented in this chapter. Business impact analysis referring to the design of “worstcase scenarios,” as well as what operations and people are essential for the business to continue in as normal a fashion as possible, is discussed. Additionally, the establishment of alternate sites and the testing, maintenance,
and updating of the business continuity plan are explained in this chapter. Analysis referring to the thresholds in designing contingency plans and the time and frequency that should be set for their activation is also presented. The chapter also examines ways to control operational risks based on the planning and policies. Controlling for prevention and improvement, as well as controlling once thresholds have been reached and the importance of having the right people and systems in the right place with good communications, are some of the aspects discussed in this chapter. Moreover, the main guides for internal operational risk control in relation to Basel II requirements are presented. The importance of reporting systems for banking organizations is examined, and it is shown how organizations should be able to access and retrieve information from reporting systems to make intelligent decisions about controlling and managing their operational risks. Finally, the main aspects that should be included in operational risk management reports are illustrated. The layout of the chapter is illustrated in Figure 9.1.
