Scenario analysis (P37) VaR (P39) EBIT (P44) Economic Capital (P46) Model risk (P43) Scenario analysis in black swan (P51) Lecture Week 5 – Risk management process: Risk treatment and monitoring ▪ Define and explain risk treatment and the key steps involved in the risk treatment process including the purpose and contents of a risk treatment plan ▪ Identify and explain possible treatment options including typical uses and their strengths and weaknesses and factors to be considered when choosing between options ▪ Define the meaning of control and explain how controls can be analysed with the use of a Bow-tie diagram ▪ Explain Human Factor Risk and why it is important to consider in the design of controls ▪ Define and explain the objectives of monitoring recognising the difference between monitoring and review ▪ Explain the role of independent audit in the review and monitoring process, ie. Three Lines of Defence ▪ Explain the purpose and use of post-event analysis. Risk treatment and key steps in the risk treatment process (P3)
i. Formulating and selecting risk treatment options (P4) –Generic risk treatment option Avoiding the risk … Option 1:- Avoiding the risk (P6) Option 2:- Taking or increasing the risk Option 3:- Removing the risk source Option 4:- Changing the likelihood Option 5:- Changing the consequence Option 6:- Sharing the risk Option 7:- Retaining the risk by informed decision ii. Planning and implementing: the risk treatment plan (P13) iii. Assessing the effectiveness of risk treatment (P14) - Effectiveness of risk sharing (P15) - Control (P16-18) - Factors to consider when assessing control effectiveness - Governance of controls(P20) - Assessing the importance of specific controls (P21) Illustration of a control effectiveness rating system (P22) Prioritising control assurance testing and risk treatment (P24) The bow-tie diagram as a formal tool to analyse risks and controls (P25) Illustration: model risk controls described (P29) Applying quantitative analysis to bow-tie diagram - no control (P30) with control iv and v. Deciding whether the remaining risk is acceptable (P32)
Human factor risk and impact on control effectiveness (P33) Categorising human failures (P37) Purpose of monitoring and review activities (P40) Internal monitoring: KRI and KPI (P42) Three lines of defence model of governance (P44) The role of independent audit in monitoring and review (P45) The role of post-event analysis in monitoring and review (P46)
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- Spring '19