In order to explain OR to stakeholders and regulators and to demonstrate OR management, it is important to have an OR framework for managing and governing OR that describes the firm's approach. An OR policy provides the board and management a formal document for documenting and communicating to all interested parties the process by which the firm identifies, assesses, manages, mitigates, and reports on OR.
You will complete the OR policy over the course of three assignments (#3, #4, #5, and #7). The document will be submitted according to the due dates outlined in the syllabus and updated accordingly for subsequent assignments.
For the fictional company description to be utilized for this assignment, please see view the files folder for Week 3.
Detailed Instructions.
The Basel Principles for the Sound Management of Operational Risk (page 8) provides a useful checklist. Also, the textbook provides some useful information (pp50-56). Be sure to include:
PBY's definition of OR and scope of the policy.
You may use the Basel definition and if you choose not to, please be sure to state how your definition differs and why.
Include an example or two to help the reader understand OR.
Be sure to include a statement that describes the scope of the policy, e.g., does this policy apply to all areas of the company?
PBY's statement of OR appetite.
Governance of OR--statement of roles and responsibilities for managing OR using the three lines of defense.
For the governance of OR, be sure to include the roles and responsibilities of:
Board of directors,
CRO,
Internal audit,
Executive risk committee,
OR committee (who comprises the committee?)
For each of these five areas, please provide from 2 to 4 bullet points (note: if you include more than four bullet points, I will only grade the first four, that is, I will ignore any points beyond the first four points) that describe how this area manages or governs OR.
5. Overview of PBY's OR tools and processes-we will cover these topics later, so leave a placeholder within the OR policy for these.
Top 3 ORs and scenario (Assignment #5)
Emerging OR (Assignment #5)
Loss data collection process (Assignment #6)
Key metrics (Assignment #6)
Risk assessment process (Assignment #6)
7. Include a glossary of terms. You can reference the glossary shown in the textbook on pp 57-58 for your glossary. You do NOT need to re-type this within your document. You may add any terms that you think are necessary.
Policy will likely eventually be more than 10 pages (after the addition of future assignments). This version will likely be between 3-6 pages (with short placeholders for future assignments).
Grading. Your work will be evaluated on the quality of each of the policy parts, including:
You followed the instructions and provided answers to all of the required elements.
Explanation of OR: You were able to clearly and succinctly state PBY's OR definition and the scope of the policy.
OR appetite: You were able to explain PBY's threshold for withstanding and/or accepting OR.
Roles and responsibilities: You were able to enumerate each area's key responsibilities for managing OR, including a description of the three lines of defense.
You provided a reasonable categorization (universe) of the firm's operational risks.
You included a glossary of terms.
Content: Information contained in the policy is consistent with material discussed in prior classes and assigned readings.
Writing: You were able to communicate your explanations in a clear and concise manner with correct grammar and spelling.
Presentation: Your will be be graded based upon the overall layout to ensure that the information is presented in a professional manner.