This case nails the gap between history and reality. We built a solid profile from past losses, but we missed a new exposure, damage to stored commodities. Lesson is that an exposure profile must add current business changes and external signals, not just clean the old data.
This case highlights how historical loss data can inform future risk management, but also exposes its limitation of the unknowns. The team missed damage to physical assets simply because it didn’t exist in past data. It reminds me that a strong Op Risk framework must balance empirical evidence with forward-looking imagination.
This case shows the danger of relying solely on historical loss data without considering how the business has evolved. Risk profiles must reflect future exposures, not just past events. For example, incorporating scenario analysis or stress testing based on current strategic plans rather than historical trends alone.
The historical loss data is insufficient for launching new business line of oil trading because it reflects only what the company have already experienced, not the risks it is about to take on. Therefore, the risk management team needs to proactively identify exposure by studying how asset-related losses occur in industries that handle similar physical commodities.
Since the oil trading is a new business and historical data of damage to asset in this scenario is limited in peers, we can analyse companies in a different industry such as oil manufacturer and be more familiar with the risk we did not experence before.
This case nails the gap between history and reality. We built a solid profile from past losses, but we missed a new exposure, damage to stored commodities. Lesson is that an exposure profile must add current business changes and external signals, not just clean the old data.
This case highlights how historical loss data can inform future risk management, but also exposes its limitation of the unknowns. The team missed damage to physical assets simply because it didn’t exist in past data. It reminds me that a strong Op Risk framework must balance empirical evidence with forward-looking imagination.
This case shows the danger of relying solely on historical loss data without considering how the business has evolved. Risk profiles must reflect future exposures, not just past events. For example, incorporating scenario analysis or stress testing based on current strategic plans rather than historical trends alone.
The historical loss data is insufficient for launching new business line of oil trading because it reflects only what the company have already experienced, not the risks it is about to take on. Therefore, the risk management team needs to proactively identify exposure by studying how asset-related losses occur in industries that handle similar physical commodities.
Since the oil trading is a new business and historical data of damage to asset in this scenario is limited in peers, we can analyse companies in a different industry such as oil manufacturer and be more familiar with the risk we did not experence before.