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Operational Risk

Module description

This module is intended for students who would like a background to operational risk management framework in financial institutions. The module introduces four common categories of financial risk – credit, market liquidity and operational – providing a brief contextual overview of the first three and focusing particularly on the latter. Operational risk and some of the more important aspects of its management are described in detail.

Module aims - intentions of the module

This module aims to provide you with an overview on the importance of risk in all industries and all walks of life. You will be able to explain what financial risk means and examine where the category of operational risk fits into the overall picture. Some of the high-profile events that have served to highlight the critical need to understand and manage operational risk effectively will be discussed.

The overall aim is to introduce the basic methods of measurement and some common mitigation techniques for financial risks that are of major concern to financial institutions. Cultural and leadership issues will be introduced to highlight the importance of developing a favourable environment for risk management. The module also emphasises the importance of a firm-wide approach in tackling operational risks that have been identified or those that may occur in the future. You should be able to apply the theoretical concepts learnt in this module to simple and practical situations.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

• 1. Identify the major risk categories: credit risk; market risk; operational risk; liquidity risk
• 2. Describe the objectives and challenges in Enterprise Risk Management
• 3. Evaluate the operational risk issues linked with recent major risk-related events in the financial services industry
• 4. Explain the techniques for measuring credit risk: credit exposure management, credit risk premium, credit ratings, modern measurement techniques
• 5. Understand the role of liquidity and market risk management function
• 6. Describe the underlying assessment and measurement of operational risk and difficulties in measuring operational risk
• 7. Identify the practical problems of risk identification: changes to business operation models; changes to business environment
• 8. Apply risk assessment and risk measurement to practical examples; rating and ranking; risk and control self-assessment; scenario analysis; benchmarking; risk event analysis
• 9. Recognise the practical constraints of implementing an operational risk management framework

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

• 10. Apply methods of risk assessment to practical examples and evaluate plans for potential risk events that may impact the business
• 11. Recognise the importance of effective leadership in sustaining a robust risk and control culture
• 12. Understand the main functions of operational risk reporting to internal and external stakeholders

ILO: Personal and key skills

On successfully completing the module you will be able to...

• 13. Understand the importance of training and education in operational risk management
• 14. Critically analyse the importance of communication with support and control functions to foster an operational risk aware culture

Syllabus plan

• Risk basics
• Other major risks
• The nature of operational risk
• The causes and impacts of operational risk
• Operational risks arising in the trade cycle
• The support and control functions
• Operational risk in the regulatory environment

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Re-assessment notes

Deferral – if you miss an assessment for certificated reasons judged acceptable by the Mitigation Committee, you will normally be either deferred in the assessment or an extension may be granted. The mark given for a re-assessment taken as a result of deferral will not be capped and will be treated as it would be if it were your first attempt at the assessment.

Indicative learning resources - Basic reading

• Managing Operational Risk in Financial Institutions Workbook, the Chartered Institute for Securities and Investment.

Indicative learning resources - Other resources

https://vle.exeter.ac.uk/

Key words search

Operational risk