Identification and Analysis of Operational Risks: A Fuzzy Cognitive Map Approach

Recently, banks and financial institutions have paid more and more attention to operational risk management. As Basel and other risk management frameworks have acknowledged, risk identification is considered as the first step of risk management process. Although estimating the risk of coverage capital is considered the ultimate goal of risk measurement and risk assessment, there is no doubt that risk management and control requires identification of the risks and factors causing them, as well as their causal mechanisms. In the present paper, a methodology was developed to map operational risks, risk factors, risk consequences and their causal links. Process based approach was used for risk mapping, and fuzzy cognitive map was introduced as risk mapping tool which is an expert based structuring technique and does not rely on operational risk data bases. Then, risk partitions were determined and finally a set of risk control policies were examined as three different scenarios.