The field of operational risk management is rapidly evolving. Among books on the topic, this edited collection is the gold standard.

In recent years, the field has progressed significantly due to the work of the Basle Committee. Operational risk entails a wide variety of contingencies. Some are better assessed qualitatively. Others are better managed quantitatively.

Quantification of operational risks depends upon two forms of data:

loss data, and
risk indication data.

The latter category includes such things as trading volume, the amount of overtime being performed by staff, systems down time, etc.

Modeling must incorporate both of the above retrospective (loss) and prospective (indicator) factors.

Assessing risk is only part of the story. Risk managing it is a next step. Management is best handled at the functional unit level—legal risk managed by lawyers, settlement issues by back office personnel, etc. However, as with market and credit risk, there should be a centralized unit to facilitate the process.

Satisfying regulatory requirements and allocating capital for operational risk are still more tasks to be addressed.

The articles in this book cover the entire process, from data collection to modeling and capital calculation. Many of the authors work for large financial institutions or consulting organizations that are actively implementing the concepts they write about. Discussions are concise, insightful and mostly practical. They are clearly informed by the careful deliberations of the Basle Committee.