Today the Institute of Operational Risk has published the sixth in its series of Sound Practice Guidance papers on the topic of External Loss Events.
The paper describes all the elements required for effective external loss events and their use in the operational risk management framework. The paper looks in detail at the elements of external loss events, uses of external events and its use in operational risk capital modelling.
When an organisation looks only within its own four walls, or restricts its view to the closest identified peer organisations, it manages risk without using peripheral vision. As a result, it may fail to identify and address potentially catastrophic risks. The old position that “it can’t happen here” seems more redundant than ever given events over recent years. Many organisations were probably overlooking a rich source information that in the past was dismissed as not relevant. Increasingly external loss events are seen as important contributors to the operational risk framework, especially scenario analysis and risk and control assessment (RCSA).