Thread by @SAH16928046

#Incident reporting should follow & precede #riskmanagement?
The two are slightly different areas of specialization
in the office environment.
It is akin to the debate between #reliability and #safety.
Both are contrasting concepts in organizational #resilience studies.

They are certain leading businesses including big banks that have separated incident reporting desks from risk management co-ordination cells.
Actually, incidents are events which require an eye and a taxonomy for recognition.
Coding outcome events into loss database is essential

The most difficult area in financial risk management was the coding of operational risk incidents or potential events having adverse negative probabilistic outcomes, which can yield material quantifiable losses in the financial statements.
@BIS_org changed the AMA RiskMetrics

Operational risk reporting and capital charge computation required for MCR/CAR assessment at banks have become much simpler, as AMA Advanced Measurement Approach Models have been replaced by BSA.
But can colour-code bars and risk heatmaps help?
Heatmap ignores correlation risk

A 5x5 #heatmap grid used by the #ERM and #Audit Departments is a delusion per se.
I will do a whole thread on this aspect of Operational Risk
They are many business and financial risks where the frequency and severity have an inverse relationship, with heavily truncated tails

Actually, there still needs a lot of conviction and buttressing to be done within the #internalaudit community, which has hijacked the ERM Profession.
#Coso ERM Model Framework does not understand certain mathematical aspects of risk mgmt.

The perspective that frequency and severity always exhibit a conjoint outcome is flawed as far as #ORM matters.
In Operational Risk, practitioners have observed that the #frequency of events can exist independently of #severity based on actual outcomes.
#Bayesian Modelling Fails.

In Internal Auditor's lingua, events which do occur but do not instigate a material financial loss or create a quantifiable noticeable hazard or exposure which needs accounting recognition as a "loss" are taxonomized as near-miss incidents.

Running an MCS - Monte Carlo Simulation Modelling Computational Exercise based on near-miss events/ incidents to compute economic capital or risk buffers is the right approach?
Needs more views on this!

I know Grey Rhino Risks (HIGH PROBABILITY -HIGH SEVERITY OR IMPACT) which we normally study in the Insurance underwriting, geography-inspired disaster risk management kinds of literature and hazards as described in geology might argue.
@GeographicalMag

Nobody can understand Operational Risk better than a Geophysics, Geology, or Geography Scholar Practioner.
#NATCAT Risk pooling is done in Insurance by P&C #Actuaries using certain borrowed concepts.
Operational Risk as understood by Auditors needs a broadening perspective.
#ILS

One last tweet to complete this mini-thread on ORM Operational Management.
It's important to #aggregate risk to study conjoint outcomes or incidents having negative consequences.
Equally significant is to disaggregate them!
After all, not all correlations are causations.
#Hume

accendoreliability.com/risk-is-round/