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Managing operational risk: Creating incentives for reporting and disclosing

Author

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  • Hain, Sebastian

Abstract

Operational risk management is acutely related to the management of people. This paper gives a systematic overview of the important incentive conflicts in managing and reporting operational risk to achieve internal as well as external risk transparency. Approaches from outside stakeholders and insurance companies are assessed and taken as inspiration for handling firms' internal obstacles. The paper focuses on firms' risk management, organisational architecture and possible incentive schemes to improve internal reporting. Monetary and non-monetary motivational aspects, sanctions and the level of monitoring linked to the source of risk are discussed. It is shown that these elements have to be balanced in order to let the incentive mechanism work.

Suggested Citation

  • Hain, Sebastian, 2009. "Managing operational risk: Creating incentives for reporting and disclosing," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 2(3), pages 284-300, June.
    • Handle: RePEc:aza:rmfi00:y:2009:v:2:i:3:p:284-300
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    More about this item

    Keywords

    decision making; incentive scheme; operational risk management; risk reporting; risk culture;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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