This course will not teach you about operational risk management. It will teach you how to do what an (operational) experienced (operational) associate level risk manager does, through learning by doing.
So, what does an operational risk manager do?
Identify the exposure to financial and reputational losses arising from carrying out business activities within a specific internal and external business environment
Determine the controls necessary to contain those potential losses within a risk appetite
Develop resilience strategies and secure resources to rapidly recover from some of those losses which will inevitably occur
Develop a governance structure to effectively and efficiently ensure that the first 3 are adequately managed throughout the firm.
An operational risk manager often faces a highly unstructured highly uncertain operational risk situation. Unlike in most classroom situations, issues are not presented to an operational risk manager as a neatly packaged set with all the component parts highly organized into an easy-to-follow structure. Parts are often missing, and the parts are ambiguous and often jumbled together in a complicated fashion. For example, the Bank is served with a Regulatory Claim alleging Money Laundering. The first task is to identify and gather the missing components, clarify, simplify and then organize these into a coherent structure. You will learn how to do this through a process called MECE which stands for Mutually Exclusive (creating the coherent structure) and Comprehensively Exclusive (adding the missing components). MECE. This addresses the highly unstructured part of the situation.
An operational risk manager must also solutions in a highly uncertain situation where there are no known ready-made solutions that can be adapted to the current situation. For example, there is no widely accepted VaR methodology to apply to operational risk. In these uncertain situations, it is not about implementing a solution but about discovering and creating a solution. Although there are no ready-made solutions in highly uncertain situations, there is a ready-made process for discovering and creating previously unknown solutions. You will learn how to create new solutions in highly unstructured situations through a process called Agile. Agile. It is also the situation faced by startups and established companies undertaking transformation innovation. Agile is the best battle-tested methodology or tool for learning to build and operate successful startups or implementing transformative innovation.
An operational risk manager manages risk (identifying exposure, controlling losses, ensuring resilience, and implementing governance for these three processes) by using MECE and Agile. In addition, operational risk managers must also communicate effectively how they manage operational risk to senior management, the board of directors, and other stakeholders These individuals are very knowledgeable about their respective businesses but often they lack the expertise to understand the detailed technical details of operational risk management. Nor do they need to. That is what the operational risk manager is there in the first place. You will learn how to effectively communicate highly technical matters in a non-technical way that is easy to understand and easy to remember by these stakeholders. This communication method is called an Elevator Pitch. Elevator Pitch. An Elevator Pitch relies on having created a MECE structure before the communication is crafted and generally follows a for who, what, and how to structure. Want an example? This course will teach you to do what an associate operational risk manager does through learning by doing.
How will you learn to do all these things? You will learn by doing.
Learning by doing is a proven method for learning how to do things (developing a skill, think learning to swim for example) rather than learning about things (developing a knowledge base, think describing swimming).
Learning by doing, exemplified by the case method, consists of presenting an operational risk issue, such as a bank faced with a massive regulatory fine or an employee lawsuit, and asking the student to resolve the issue. (Learning by Doing)
In developing the resolution to the issue, you will use MECE to identify and structure the relevant components and parts of the issue, apply Agile to develop the resolution to the issue and create an Elevator pitch to communicate the resolution.
Before the resolution of the issue can be created, the issue needs to be clearly and unambiguously understood, and this is achieved by applying MECE. You will start by analyzing the issue into its detailed relevant component parts, identifying and adding missing parts, and chucking related parts into a hierarchal non-overlapping tree structure with 3 to 5 main branches and each branch sub structured into 3 to 5 subbranches and so on until all the component parts fit uniquely into one on the branches. After all, this is done, you can begin to create the resolution.
The resolution creation process, through Agile, begins with the student hypothesizing a tentative resolution based on an educated guess synthesized from limited research, and their current knowledge. The goal is to rapidly create a tentative resolution. The next step is to test the tentative against preestablished criteria and if the tentative resolution meets most of the criteria, that is it is good enough for the purpose, then the process stops, and the tentative resolution becomes the final resolution. If as is the case most of the time, the tentative solution is not good enough then the gaps identified during the testing are investigated for resolution and the process begins again for each of these gaps. The iteration process continues until the test yields no further material gaps and results in a good enough resolution.
Finally, you will communicate your resolution through an Elevator Pitch.
Throughout this learning process, the students receive guidance and coaching feedback in real-time through in-class exercises, Q&A sessions, and offline through assignments and what you should be able to do self-tests for each class.
By working through cases and receiving guidance and feedback, your proficiency in rapidly resolving operational risk issues will be steadily increased to the level of an associate operational risk manager.
You will demonstrate your proficiency in doing what an operational risk manager does through a group project at the end of the course. (think of this as a demo day for startups.) and through the final exam.
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