Creating an Enterprise Risk Management (ERM) Model for identifying and evaluating the operational risks for a telecommunications company. A case study

Abstract

Operational risk is defined as the potential losses resulting from events caused by inadequate or failed processes, people, equipment, and systems or from external events. One of the most important challenges for the management of the company is to improve its results through its operational risk identification and evaluation. Most Enterprise Risk Management (ERM) scholarship has roots in the financial sector and there is a lack of studies in other industries such as telecommunications. This research study proposes an innovative operational risk identification and evaluation model, based on a case study approach for a telecommunications company (TELCO), the main pillars of which are the operational risk identification frameworks for events, risk factors and risk effects, as well as the development of an operational risk assessment methodology, on the basis of an operational risk self-assessment process and method. The operational risk selfassessment process evaluates operational risks through a quantitative analysis of estimates the inputs of which are the economic impact and the probability of occurrence of events. The operational risk self-assessment method is the “engine” for calculating the economic risk impact, applying actuarial techniques, which allow estimation of unexpected and expected loss distributions in TELCO. The results of the analyzed business units in the field work for the case study were compared with standardized ratings (acceptable, manageable, critical, or catastrophic), and contrasted against the company’s managers, proving that the operational risk identification and evaluation model is a reliable and useful management tool for the business and its stakeholders, and leading to more research in other sectors where operational risk management is key for the company success.