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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. Comprehend the fundamentals of risk, including its sources, identification, assessment, and management.
• 2. Recognize the critical role of control functions (e.g. second and third lines of defence) in operational risk governance.
• 3. Analyse and interpret market and credit risks, including their measurement and mitigation techniques.
• 4. Understand the interdependence between operational risk and other financial risks in organisational stability.
• 5. Explore the nature, origins, and potential impacts of operational risk.
• 6. Apply operational risk management techniques throughout the trade cycle.
• 7. Understand regulatory frameworks and compliance requirements related to operational risk.
• 8. Comprehend the regulatory environment and requirements relating to Operational Risk.
• 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. Evaluate risk scenarios and develop actionable mitigation strategies.
• 11. Recognise the importance of effective leadership in sustaining a robust risk and control culture.
• 12. Assess operational risk reporting processes for internal and external stakeholders.

ILO: Personal and key skills

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

• 13. Foster collaboration with control and support functions to enhance organisational risk awareness and preparedness.
• 14. Critically analyse the importance of communication with support and control functions to foster an operational risk aware culture.

Syllabus plan

• Risk Identification Tools
• Scenario Identification Process
• Risk Definition and Taxonomy
• Risk Connectivity and Risk Networks
• Risk Appetite
• Risk and Control Self-Assessments
• Scenario Assessment
• Regulatory Capital and Modeling
• Operational Risk Governance
• Risk Mitigation
• Root Cause Analysis and Action Plans
• Conduct and Culture
• Incident Data Collection
• Key Risk Indicators
• Risk Reporting
• Valuable ORM
• Project Risk Management
• Information Security Risks
• Operational Risks in Cryptocurrencies
• Resilience and Reputation

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 have been deferred for any assessment you will be expected to submit the relevant assessment. 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.

Referral – if you have failed the module overall (i.e. a final overall module mark of less than 40%) you will be expected to submit the relevant assessment. The mark given for a re-assessment taken as a result of referral will be capped at 40%

Indicative learning resources - Basic reading

•  Operational Risk Management: Best Practices in the financial services industry (Chapelle, Ariane, 2019)

Indicative learning resources - Web based and electronic resources

ELE – College to provide hyperlink to appropriate pages

Indicative learning resources - Other resources

Key words search

Operational risk