Example #8. Chapter 16: Operational Risk Management
TL: This chapter illustrates the answers to fundamental questions, including (page 280):
• What is operational risk? Why should you care about it?
• Is risk all bad?
• How do you assess operational risks, particularly in a dynamic business environment?
• Why do you need to define risk tolerance for aligned decision making?
• What can you do to manage operational risk?
• How do you encourage a culture of risk management at the operational level?
• How do you align operational risk management with enterprise risk management?
First, let's answer the question of "What is operational risk?"
LCT: Using Exhibit 16.2, The Bow Tie Model (page 291), provide an analysis of a current news event. This is reprinted as Exhibit 2.2 in this chapter.
LN: The current news event may be any risk event, from explosions to traffic wrecks, bankruptcies to product recalls, flood damage to tornado damage, information leaks to software failures. The analysis answers the questions, and the content is used as a means to learning.
TL: "The 5 Whys is a question-asking method that can be used to explore the cause-and-effect relationships underlying a particular risk event or problem" (page 294).
LCT: Continue your current news event analysis by exploring with at least five whys.
LN: There are always current risk events in the news, most of which can be searched for, often including videos. As an example, a recent class chose a wreck between a church bus and a truck on an expressway. At first, it appeared that the group's risk event selection was a direct adoption of the textbook example – a fatal accident (page 294).
However, the student-engaged whys expanded quickly, as follows:
Why did the wreck occur? Bus crossed median of expressway after tire blew out.
Why did the tire blow out? Poor bus maintenance, bad tire, debris on roadway.
Why was there poor bus maintenance? Expenses limited by budget.
Why was the driver not able to control the bus? Young, inexperienced volunteer.
Why was the driver an inexperienced volunteer? Previous older, experienced driver quit driving given his age. Newer driver only needs to pass commercial driver's license (CDL) exam and drives no more than twice per week, rarely on the expressway.
Why did the bus cross the median? No safety barrier in place.
Why was there no safety barrier in place? State had added several hundred miles of wire or concrete median barrier, but this section of expressway had lower priority based on wreck history. Why wasn't topology and shallow median considered? Engineering expertise more expensive.
Why were individuals seriously injured? Lack of personal restraints.
Why were there no personal restraints? Not required, expensive option.
Why are personal costs not given greater weight in budgeting?
Exhibit 2.2 The Bow Tie Model