On The Construction Of Operational Risk Management System Based On The Coso Framework

It hasn't been well done for commercial banks to define, identify, assess and control the operational risk in order to manage it by the numbers. One of the reasons is there is not a strongly operational risk management (ORM) framework. This article points out that the essential cause of operational risk coming forth in China's financial industry rests with the unsound internal control.According to the conclusion above, this article designs an ORM framework named COSO-ORM basing on Internal Control — Integrated Framework which is set up by COSO committee. COSO-ORM associates ORM centric matter with the 5 factors of internal control. COSO-ORM is comprised of 6 factors, that is ORM environment, ORM identification, ORM assessment, ORM activities, ORM monitoring and ORM information & communication. Through utilizing the Internal Control — Integrated Framework, commercial banks can manage operational risk effectively.This article uses the thought of process management to put COSO-ORM in practice. Through BPR, commercial banks re-identify the core value process, management process and support process, confirm the relations and interfaces between those processes to establish the bank's meshwork of processes. At the base of it, commercial banks can identify, assess and control the operational risk well. The special contribution of this article is not only designing an operational risk management framework, but also putting forward the method of performing it. The article provides an exercisable project for commercial banks to set up the operational risk management system.