Future of Operational Risk Scenarios White Paper

The current state of operational risk scenario analysis

The white paper, Operational Risk Scenarios: From Risk Measurement to Risk Management, starts by looking at the original purpose of scenarios ‐ capital calculation – and how they are being used currently.

Our discussions showed that while scenario analysis is still primarily being used to support the measurement of operational risk, the industry is looking for opportunities to gain risk management benefit from the exercise. We found that most firms are working on framework improvements and optimisation, such as making the process less time consuming or using risk drivers.

Where firms are in their journey from risk measurement to risk management?

Evolving to support active risk management

The paper then explores how financial organisations can move from using scenario analysis for risk measurement to using it to deliver risk management benefits, covering examples such as playbooks and investing in controls. Finally, we look at how scenarios can be used to simulate business decisions.

For the purposes of this handbook, we have defined three broad areas of advanced practice that build on the core components of the end-to-end scenario process:

1. Portfolio maintenance and coverage
2. Scenario development and assessment
3. Integrated scenario usage

There are five key foundations for a good scenario programme. The handbook provides a practical guide to each one.