8. Operational Perspective on the ERM Process

This chapter delves into the operational perspective of the Enterprise Risk Management (ERM) process, focusing on the critical stages of risk identification, quantification, and reporting. It begins by outlining the objectives of risk identification, including the creation of a comprehensive risk inventory and the prioritization of risks for further analysis. The text discusses various methods and instruments for risk identification, such as checklists, workshops, and system analyses, and differentiates between preventable, strategic, external, and novel risks. It also highlights common problems encountered during risk identification, such as overlaps and redundancies, and the challenge of identifying novel risks. The chapter then explores the concept and objectives of risk quantification, emphasizing the importance of describing risks using probability distributions and the need for objective measurement. It covers various methods for risk quantification, including qualitative and quantitative approaches, and discusses the requirements for effective risk quantification. The text also addresses the concept and objectives of risk reporting, differentiating between internal risk reporting and external risk disclosure, and discussing the key design criteria for risk reporting. Throughout the chapter, real-world examples, such as the Lufthansa Group's risk management practices, are used to illustrate key concepts and provide practical insights. The chapter concludes by highlighting the importance of continuous monitoring and the role of supervisory bodies in the ERM process.