An Alternative Approach for the Operational Risk Assessment of a New Product

27 Pages Posted: 6 Mar 2019

See all articles by Andrea Giacchero

Andrea Giacchero

Cassa Depositi e Prestiti S.p.A.

Jacopo Moretti

Cassa Depositi e Prestiti S.p.A.

Francesco Cesarone

Rome Tre University - Department of Business Studies

Fabio Tardella

Faculty of Economics - Sapienza University of Rome

Date Written: March 5, 2019

Abstract

The risk assessment of a new product is one of the most critical activities performed by the operational risk management of a company operating in the financial sector. There are few reference points for the operational risk management to assess the riskiness of a new product, due both to the lack of operational loss data and to the inexperience of the process owners in handling the new operation. To overcome these two limitations, we propose a methodological operational risk framework to identify and prioritize the most dangerous operational risk events with respect to the introduction of a new product in a financial institution. The methodology starts with the use of a checklist based on risk factors (causes) to assess the operational riskiness of a new product before its launch. Then, after the launch and with particular reference to the management of the new product, we use the analytic hierarchy process approach to prioritize operational risk events, and the “80/20 rule” to allocate them to appropriate risk rating classes. Finally, we develop two optimization models to minimize the total cost of investments required to cover all the important risks, and to study the relationship between the total cost of investments and the exposure coverage.

Keywords: analytic hierarchy process, new product, operational risk assessment, 80/20 rule, mathematical programming

Suggested Citation

Giacchero, Andrea and Moretti, Jacopo and Cesarone, Francesco and Tardella, Fabio, An Alternative Approach for the Operational Risk Assessment of a New Product (March 5, 2019). Journal of Operational Risk, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3346441

Andrea Giacchero

Cassa Depositi e Prestiti S.p.A. ( email )

Italy

Jacopo Moretti (Contact Author)

Cassa Depositi e Prestiti S.p.A. ( email )

Italy

Francesco Cesarone

Rome Tre University - Department of Business Studies ( email )

Via Silvio D'Amico 77
Via Silvio D'Amico 77
Rome, TN RM 00145
Italy

HOME PAGE: http://host.uniroma3.it/docenti/cesarone/papers.htm

Fabio Tardella

Faculty of Economics - Sapienza University of Rome ( email )

Via del Castro Laurenziano, 9
Roma, Rome 00161
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
126
PlumX Metrics