Tools for Systematic Operational Risk Management

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One of the major challenges facing large organizations today is assessing and controlling the risks that are inherent in their daily operations. During the enactment of a business process a lot of exceptions, that is, deviations from the normal sequence of events, might occur. To assure that a process is still able to fulfill its organizational goals, process participants must be able to detect, diagnose and successfully resolve such exceptional conditions as they occur.

Traditionally, managers have relied on their experience and understanding of a process in order to handle deviations from the expected flow of events. However, the increasing complexity of modern business processes and the accelerating pace with which these processes change has made the reliance on individual managers’ experience and intuition an increasingly less satisfactory way to deal with operational risks. There is an increasing need for systematic business process operational risk management methodologies. Such methodologies will assist business process designers to anticipate potential losses and instrument their processes so that losses can either be avoided or be detected in a timely way. Furthermore, when exception manifestations occur during process enactment, these methodologies assist in selecting the best way of resolving them.

My work in this area proposes a knowledge-based approach for designing robust business processes. Rather than requiring process designers to anticipate all possible exceptions up front and incorporate them into their models, this approach is based on a set of novel computerized process analysis tools, which assist designers in analyzing “normal” process models, systematically anticipating possible exceptions and suggesting ways in which the “normal” process can be instrumented in order to detect or even to avoid them. When exception manifestations occur, these tools can help diagnose their underlying causes, and suggest specific interventions for resolving them. The approach is based on an extensible knowledge base of generic strategies for avoiding, detecting, diagnosing and resolving exceptions. It is especially relevant in the case of inter-organizational workflows, where no single entity has full control over the design and enactment of the complete process. In that case, operational risk management becomes a critical necessity.