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Scenario Assessment Masterclass

The use of scenarios in risk management is currently a topic of considerable attention, both within individual firms and in discussions with regulators. Basel II and most country regulations require the use of scenarios in some shape or form as an input into advanced approaches to regulatory capital estimation, for ensuring capital adequacy under Pillar 2 and in stress tests, while sensible business management would see scenarios also employed to measure a broad range of operational, business and strategic exposures.

Yet the use of scenarios is accompanied by considerable debate and controversy – accusations that the process is open to exploitation, gaming and bias, that the output is inherently qualitative and subjective, that results can never be reproduced consistently and are open to too much variation over time. However, an increasing number of firms are embracing scenario assessment as a core, if not the core, component of their operational risk management programmes. So, the question should be – what are you and your firm doing in the area of scenario assessment?

To help firms answer this question and to share experience gained from assisting numerous firms and regulators around the world address how to incorporate scenario assessments into their operational risk framework, RiskBusiness International has developed and offers its unique Scenario Assessment Masterclass, offered either as an in-house course or for public enrollment.

Who Should Attend?

The Masterclass is ideal for all staff engaged in risk identification, risk quantification and scenario assessment, as well as for audit, compliance and risk professionals who need to understand different approaches to risk identification. Management at all levels would also benefit from an in-depth understanding of what scenarios are and how the output from scenario assessment can be used. Regulators would benefit from a greater understanding of some of the issues relating to scenario assessment and how the supposed shortcomings can be overcome.

The Masterclass will address the needs and requirements of financial services in general and is equally applicable to banking, insurance and asset/fund management. A number of non-financial services case studies will also be used, accordingly individuals from outside of the financial services industry may also find the Masterclass of interest.

How does it Work?

The Masterclass is restricted to a limited number of delegates, who will work together in groups under expert facilitation to understand pitfalls, issues and benefits, to explore various techniques and to share experiences. Expert input on a wide range of topics will precede each exercise, with a focus on learning through experience.

Facilitation

The Masterclass will be led by Mike Finlay, Chief Executive of RiskBusiness International, widely recognised as one of the world’s leading experts in operational risk management. Mike has over 25 years experience in banking and finance, is a frequent lecturer on operational risk for banking supervisors at the Bank for International Settlements, as well as at industry conferences and seminars. Mike is a regular visiting lecturer on risk management at Judge Business School, Cambridge University, and has worked with the World Bank/IFC in the Russian Federation and across Eastern Europe, as well as with the Financial Services Volunteer Corps and the BIS’ Financial Stability Institute in ongoing risk management education.

MASTERCLASS AGENDA AND CONTENTS

08h30      Registration, Welcome and Introductions
     
09h00    What is scenario assessment?
➤ The difference between risk assessment and scenario assessment.
➤ Scenario assessment versus scenario analysis.
➤ Exploring the uses for scenario assessment – exposure assessment, stress testing, capital measurement,
risk management.
➤ Top-down versus bottom-up scenario assessment.
➤ Using single variable versus multi-variant scenarios.
Selecting scenarios – how?
➤ Methods to identify where scenarios are to be applied.
➤ Using scenarios to fill “white-spots” in internal risk event data.
➤ Exercise – delegates will work in groups, using a defined corporate situation, to identify where and what types
of scenarios would be useful for assessment.
➤ Selecting scenarios for application across a diverse business group. 
     
10h30   Coffee and networking break
     
11h00    Developing a scenario assessment model:
➤ Different scenario assessment models – workshops, interviews, interactive assessment, automated polling.
➤ Scenario documentation – how to document scenarios in a manner commensurate with the assessment
model and the objective of the assessment.
➤ Exercise - delegates will work in groups to document a scenario.
➤ Preparing for assessments – scheduling, briefing participants, provision of materials.
➤ Role of the facilitator – the required skill-set and knowledge, role around documentation.
➤ Role of observers – is it desirable to have non-participating observers?
     
13h00   Lunch
     
14h00   Common pitfalls in scenario assessment:
➤ The concepts of bias, gaming and deliberate assessment manipulation.
➤ How to deal with “difficult” participants.
➤ Issues relating to assessment inconsistency and the inability to reproduce assessment outputs reliably
over time.
Exercise – Delegates will provided with a specific scenario, a simulated assessment schedule and required to prepare to facilitate the appropriate form of scenario assessment.
     
15h30   Coffee and networking break
     
16h00   Using the output from scenario assessment:
➤ Documentation of output and results, initiating and managing follow-up and remedial actions.
➤ Reports and feedback to participants – importance of anonymity versus open discussion, the importance of
getting participant feedback.
➤ Using scenario assessment as an inputs to a capital model.
Exercise – Delegates will be required to facilitate a scenario assessment session, with feedback from fellow delegates and the Masterclass facilitator.
     
17h30   Summary and Masterclass close