EXTERNAL LOSS EXPERIENCE

EXTERNAL LOSS EXPERIENCE

What companies experience from internal operational failures is insufficient to capture the full operational risk profile. The risk and control self-assessment help fill out some of the gaps, based on workshops challenging the organization on how severe losses from operational failures could become, if different scenarios play out.

External

Operational loss experience is typically not characterized by an abundance of severe incidents to learn from, so considering peer companies’ loss data is a source to gain further knowledge.

OPERATIONAL LOSS DATA CO-OPERATIONS
To gain access to external operational loss data, one can join international operational loss data co-operations that exist (e.g. ORX). Joining an operational data co-operation, means that you submit your own operational incidents and gain access to external experience from other financial institutions. It is ofcourse completely anonymous.

The loss data provided to the co-operation must adhere to fixed specifications, all these are captured in the SIGMAOpRisk incident capture process.

PUBLICLY AVAILABLE LOSS DATA
Another way to gain access to external information is to gather publicly available information from the media. Many large operational failures are reported in the news and these can be extracted and used as external input.

Some companies make it part of their business to collect the public information and sell databases with such incidents.

CHALLENGES WITH EXTERNAL LOSS DATA
Using external loss data, one has to be very cautious. A lot of relevance and scale considerations must be put into applying external data to your institution. Are the institutions you get data from even comparable and can they be considered peer institutions? How to scale operational losses based on company size and other parameters?

When using publicly available data, large biases exist, as the media is mostly interested in very large scale operational failures.

THE SIGMAOpRisk WAY
In SIGMAOpRisk external experience can be input and included in the risk assessments and serve as input into the workshop process. We have experience scaling external experience and can provide guidance for that.

Using SIGMAOpRisk will allow you to learn from and benchmark to other SIGMAOpRisk users anonymously, as you can compare statistics of your own loss levels across various business and Basel category dimensions.