15 January 2010
Published in: Operational risk
“Risk tolerance is key to operational risk”
Boards and senior management must be fully engaged in setting the risk tolerance for operational risk, a report released today by the Institute of Operational Risk argues.
The report, Risk Appetite, is the first in a series which aims to provide practical guidance on operational risk: "To date much guidance in this field has focused on what a company should do in a theoretical way", the Institute said.
According to the Institute, "Developing risk appetite statements for operational risk is notoriously difficult as the risks are often dependent on human behaviour." What's more, the discipline is relatively immature and lacks consensus on key issues, the report continues.
One piece of advice the report stresses is that setting the tolerance must start from the top of a company. "It's essential that operational risk is recognized as a strategic driver for businesses," IOR chairman Philip Martin said. "That means demonstrating its value to a management board in a practical rather than a theoretical manner."
The Institute of Operational Risk, based in the UK, has around 200 individual members.
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