Modeling Operational Risks in Business Processes

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


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