tag:blogger.com,1999:blog-6452389006521661357.post6939611105472879826..comments2024-03-12T23:42:29.203+08:00Comments on Causal Capital: ERM is more than Op RiskCausal Capitalhttp://www.blogger.com/profile/10919572283927557081noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-6452389006521661357.post-30170991741379561912018-06-01T19:01:18.104+08:002018-06-01T19:01:18.104+08:00Very informative and helpful post….It was a great ...Very informative and helpful post….It was a great experience of visiting this post of <a href="http://nsglobalconsulting.com/" rel="nofollow"> risk management </a>. Thank you for sharing.William Castillohttp://nsglobalconsulting.com/noreply@blogger.comtag:blogger.com,1999:blog-6452389006521661357.post-88738267890918860012013-09-23T11:08:51.858+08:002013-09-23T11:08:51.858+08:00As an example, I think that finance (where I'v...As an example, I think that finance (where I've spent nearly all of my near-twenty year career) might be something of an outlier because its current form is still very new despite the fact that that industry now wags the dog of our economies. But point taken.<br /><br />I'm glad to see your comment that there's wide agreement on the distinction between strategic and operational risk. That's where operational risk addresses a question similar to "are we conducting our regular activities in a fashion with acceptable residual risk". To my mind this is a vastly different question than strategy thinkers talk about, in which risk is inherent (e.g. Porter's five forces are all risk areas), which might be phrased, "what might we suffer through the trade-offs we make in pursuing a given strategy". But to my mind there is a strong link between operations to strategic risk, and it's in the ability to execute, where the questions are "are we capitalizing on market opportunities the way we should?" and "our entire company consists of six business processes, why are three of them so immature?" I'm not sure whether that qualifies as "enterprise risk management" or just "management" (or "governance") but to take this back to your point I do see a lot more to what I take to be ERM than operations risk.<br /><br />I'm learning a lot from this blog and from your commentary on the ISO 31K forum on LinkedIn, thanks for keeping it up.Anonymoushttps://www.blogger.com/profile/03984345412827185808noreply@blogger.comtag:blogger.com,1999:blog-6452389006521661357.post-74799865001900072242013-08-14T16:57:57.350+08:002013-08-14T16:57:57.350+08:00Morgan,
I reckon we are all on a continual path o...Morgan,<br /><br />I reckon we are all on a continual path of learning when it comes to risk management because it is such an absolutely massive field of work.<br /><br />The risk management community also comprises of many individuals with very diverse backgrounds; quants, risk analysts, framework designers, IT people, quality control experts, auditors, safety assessors, credit risk analysts, rating agencies, traders … The list is endless but that leaves us all talking risk from different perspectives.<br /><br />I personally try to keep a broad and open mind to the various alternate concepts that are discussed between the members of the risk community at large.<br /><br />Your remark on ERM being operational versus strategic is probably common consensus and generally accepted understanding in the ERM community. What I am saying with this posting is that I believe common practice is missing a huge part of risk management by ignoring the financial aspect of uncertainty.<br /><br />You are also correct in my opinion by stating operational risk isn’t more or less important than any other risk, what I am pressing at here is that ERM practitioners are missing great opportunities by ignoring these other areas of risk management.<br /><br />On your point with respect to the valve and the poor hedge, two examples come to mind. Cathay Pacific on the hedge and the BP Texas Oil Refinery explosion on the valve.<br /><br />Thanks for your comments, they are particularly useful, articulated well and I appreciate them.Causal Capitalhttps://www.blogger.com/profile/10919572283927557081noreply@blogger.comtag:blogger.com,1999:blog-6452389006521661357.post-5937944042666108172013-08-14T14:49:45.045+08:002013-08-14T14:49:45.045+08:00Martin, Thanks for the insight. I am learning. I ...Martin, Thanks for the insight. I am learning. I only have experience with informal practical methods of risk assessment. Therefore my terminology is probably not as accurate as yours or in line with international frameworks. Of course that is why I am reading your blog, to learn about the frameworks outside of the narrow experiences that I have had with risk.<br /><br />My understanding of ERM is that there are two components of it, the operational vs. board level. They relate as tactical (operational) is to strategic (board level). For example, "information technology" is an operational risk area, whereas "information" is a board level risk. <br />Though not all categories are as neatly related, or related to a separate level of risk at all.<br /><br />This segregation of risk makes sense to me since certain things must be handled by those on the ground, and other things by those at top management. I don't see either as any less important than the other. An organization can be destroyed just as easily by a poorly placed hedge, or failure to hedge, just as easily as it can be destroyed by a malfunctioning $7 valve which leads to a refinery explosion.<br />Morganhttps://www.blogger.com/profile/14542465419767799379noreply@blogger.comtag:blogger.com,1999:blog-6452389006521661357.post-84928318194193852282013-08-13T10:29:41.826+08:002013-08-13T10:29:41.826+08:00Morgan,
Thank you for your comment and I agree wi...Morgan,<br /><br />Thank you for your comment and I agree with you in general that the complexity of operations and investment into physical capital in banks, would more than likely seem humble in comparison with a mining company, just as example.<br /><br />Banks do suffer from huge amount of fraud, they can have extensive branch networks scattered over large distances and their operating centers would come across as a factory to some people. They aren't free of operational risk.<br /><br />None the less you are probably right but one of my arguments is "who would really know?"<br /><br />One thing banking has done well with in risk management is to develop a framework that can measure RWA's in line with capital; a "Risk Adjusted Return on Risk Adjusted Capital" measure of risk. They also publish this information to the public as part of regulatory transparent disclosure and the charts in this blog were derived from such data.<br /><br />When we move to other industry sectors, economic capital models don't often feature, risk generally isn't measured in a parametric manner and understanding what is your largest threat is left up to operational risk assessment in a lot of cases. This doesn't resonate with me as being particularly profound but it is far from accurate.<br /><br />The second part of this blog is based on bringing in these other areas of risk management to allow enterprise risk management by the enterprise. If ERM is operational risk, we should call it that, not enterprise risk.Causal Capitalhttps://www.blogger.com/profile/10919572283927557081noreply@blogger.comtag:blogger.com,1999:blog-6452389006521661357.post-76791064953165888762013-08-13T08:45:22.538+08:002013-08-13T08:45:22.538+08:00Martin, I think one needs to look at the specific...Martin, I think one needs to look at the specific circumstances of the organization being assessed. Certainly a corporate bank, with a class-A office space (rented) in a metropolitan area and no significant assets onsite other than furniture, laptops and paperwork, will have minimal operational risk. In fact, that is why we have metropolitan areas. To protect us from the dangers of the wild, and bring us closer to our customers.<br /><br />Contrast that with a manufacturing or production facility that works on the frontier (offshore or in remote areas) and the risk profile inverts or equalizes as the dangers of the wild return and protection afforded by the state diminishes. <br />Morganhttp://www.morganmckay.comnoreply@blogger.com