We propose an approach for modeling and analysis of operational risks in financial institutions. The importance of understanding and mitigating operational risks had been gaining a growing attention recently (1) and led to the necessity for providing systematic foundations for modeling such risks. In this paper, we propose a methodology for modeling operational risk based on business process models. By connecting the generation of a probabilistic network with the business process model, this approach enables changes in the operational risk model whenever di erent aspects of the business process in the financial institution changes. In addition, this can enable progress toward continual operational risk management, by automatically changing the parameters of the business process model based on monitoring the business process performance and cascading the change in the operational risk model, thereby synchronizing the model changes with the corresponding business process changes. We demonstrate this methodology with some examples including IT related risk, infrastructure and outsourcing related risks.
By: Feng Cheng; David Gamarnik; Nitin Jengte; Wanli Min; Bala Ramachandran
Published in: RC23672 in 2005
LIMITED DISTRIBUTION NOTICE:
This Research Report is available. This report has been submitted for publication outside of IBM and will probably be copyrighted if accepted for publication. It has been issued as a Research Report for early dissemination of its contents. In view of the transfer of copyright to the outside publisher, its distribution outside of IBM prior to publication should be limited to peer communications and specific requests. After outside publication, requests should be filled only by reprints or legally obtained copies of the article (e.g., payment of royalties). I have read and understand this notice and am a member of the scientific community outside or inside of IBM seeking a single copy only.
Questions about this service can be mailed to reports@us.ibm.com .