To become a proficient operational risk manager, you need to practice "What You Should Be Able to Do" (WYSBAD) after each lesson and receive feedback, and then re-practice after incorporating the feedback.
Avoiding the Ilusion of Proficiency
Research shows that the more people merely watch others perform (without actually practicing it themselves i.e. listening to a lecture, or reading ), the more they believe they can perform what they watched others do. However, test after test shows that people's actual ability to perform what they observed others do does not improve. All that improves is their ability to describe the task accurately but not their ability to perform the task proficiently. For example, you may know all the rules of chess by studying the rules or observing others play chess but you will never be an expert chess player unless you deliberately practice playing chess. The same is true for doing risk management.
To avoid the illusion of proficiency, you must practice, identify gaps in your practice against the desired level of proficiency by either self or coached feedback, practice correcting the gaps, and repeat until there are no remaining gaps within your desired level of proficiency. This is what is meant by deliberate practice.
Becoming Proficient
In this course, there will be ample opportunity for you to deliberately practice both in class and offline. It will be up to you to seize the opportunity.
In class, case studies and working through risk issues will give you time to practice. Offline, the opportunity to practice is provided through practice exercises described within the What You Should Be Able to Do (WYSBAD) after each class.
These exercises are more than just key takeaways. Key takeaways are summaries of what you should know while WYSBADs are practice sessions designed to improve your proficiency in doing rather than just knowing. It is about improving know -how not know about.
WYSBAD provides a self-assessment after each class to identify areas (the gaps) where you need further practice and feedback to improve your proficiency. To get the full benefit of completing WYSBAD, you should actually practice doing the exercise with a colleague and get their feedback or ask questions in the comment section below. If you just read them and convince yourself that you can do it, you will fall into the illusion of proficiency and the illusion will be shattered once you are asked to perform the task either on an exam or more importantly at work.
To paraphrase Feynman, one of the greatest 20th-century theoretical physicists, the best way to know if you really understand something is by showing to someone else how it is done. This technique has become popular beyond physics and is now known as the Feynman technique.
By practicing WYSBAD with a colleague or in groups, you will identify
what you really can do vs. what you think you can do and
guide you to seek feedback on those you can't yet do
you can seek feedback by asking in-class questions or by positing as "comments" in the related post.
What You Should be Able To Do (organized by Class)
Create a MECE structure
gather lots of information about something you find interesting and organize the information into a MECE structure
Use Agile Problem Solving when appropriate
take any interesting problem you would like to solve
where you don't know where to start and solve it using the Agile Problem Solving methodology
Create an Elevator Pitch
Find a question you may be asked, like "What is the operational risk course about" or "What are you working on?" or any other question
Create an answer
Organize the answer into a MECE structure, this may involve adding parts or deleting parts of the answer
Create an EP from the MECE, using the EP methodology ( example of an EP: "I am creating y, for x, by using z." or some variation of this structure, and where x, y, and z are the first level of your MECE structured answer.)
Explain what an operational risk manager does
Given an event in SaS Op Risk Database, identify the operational risk type and provide the rationale
Apply the ORM Framework to the RBC TD FX Regultoy Fine Case study
Create and use a Gap analysis to identify less than full compliance with regulatory or internal policy requirements (gaps) and develop action plans to close the gaps
Generate an Op Risk Exposure Profile using historical loss data
Analyze and draw conclusions from an Op Risk Profile
test and fix internal data to create an ORP V2.0
Enhance ORP to correct for no loss experience does not equal no exposure/ using external data
Prepare External Data for creating the enhanced ORP (V3.0)
Enhance the ORP profile for no industry loss experience does not equal any exposure/ using Scenario Analysis
Prepare and facilitate a scenario analysis to identify exposures, and create ORP (V4.0)
Enhance the ORP to account for changes in the external and Internal business and control environments
Identify the risk associated with a new business or product launch using internal and external prepared data, scenario analysis, and changes in the external and internal business environment
Create an Elevator Pitch Describing an RCSA
Identify controls for a given exposure and describe how the controls are used to keep the exposure within the RA
Do an RCSA
Create an Elevator Pitch Describing Resilience
Design a MECE BCM Framework
Business Continuity Plan
Business Impact Analysis
Recovery Objective
Testing
Governance for BCM
Evaluate the Major Elements of a BCM, using Gap Analysis and Make Remediation Recommendations
Create an Elevator Pitch describing the Operational Regulatory Capital prior to Dec 2017
Create an Elevator Pitch describing the reasons the regulators replaced AMA with SMA
Calculate and represent graphically the SMA Op Risk Reg Capital
Start with the Cybersecurity Elevator Pitch and create a Risk Management Program for
Classifying Information Assets and ensuring
sufficient Confidentiality
appropriate Integrity
adequately Available
Model Risk
Evaluate a Model Risk Management Program by identifying what is missing (a Gap Analysis),
what the missing parts are used for,
and what doesn’t belong, if any
Take any Model Risk Framework and identify what is missing when compared to the ECEG or modify the ECRG
Third-Party Risk
Evaluate a Third-Party Risk Management Progam by identifying what is missing (a Gap Analysis),
what the missing parts are used for,
and what doesn’t belong, if any)
Take any Third Party Risk Management Framework and identify what is missing when compared to the ORF/TPRM or modify the ORF/TPRM
Risk Culture
Create an EP-type description of Risk Culture
Create a 3-level MECE structure for the Risk Management of Risk Culture (using regulatory guidance as a base)
Climate Risk
Create an EP-type description of Climate Risk
Create a 3-level MECE structure for the Risk Management of Climate Risk (using regulatory guidance as a base)
How can we best evaluate whether we are falling into the "illusion of proficiency"? Are there practical techniques beyond peer practice that can help maintain self-awareness of our actual skill level?
How does the SMA model ensure that both large and small banks, with varying levels of risk exposure, are adequately capitalized to absorb/manage potential operational losses? Additionally, how does the use of historical loss data contribute to a more risk-sensitive calculation under this framework?
Based on the case, are we fully compliant with the latest regulatory requirements, and how should we interpret any ambiguities in the guidelines (e.g., around the use of internal loss data in capital calculations)? What are the potential regulatory risks of underestimating or overestimating operational risk capital, and how could this affect our bank’s overall risk profile?
After last week's class, I was wondering how the SMA model for operational risk capital calculation reflects a bank's resilience to operational losses over time and what variables most influence this resilience. And what advantages does the SMA offer in terms of creating a more resilient banking system, especially in handling operational risks at smaller or less complex financial institutions?
What strategies can be employed to ensure that exercises in WYSBAD are applied effectively outside of classroom settings, and how can practitioners maximize their learning from these practice sessions?