Chart: Operational Risk Event Chains
“Why?, Why? Why?” is what is asked after a problem occurs. The need is to ask "why?" before the "bad thing" happens.


 
Operational risk managers can more easily understand events by seeing how events behave in chains.
 

“Events” are rarely singular. In real life, events unfold – a “chain of events” as it is popularly called. Just like a storybook. Each of these events has preceding and following events. For practical purposes in working with these chains, we select a beginning and ending point based on proximity and impact – similar to the way waves matter to a boat. There are a number of techniques for mapping these events, this chart illustrates one basic approach.      (continues below....)

This diagram illustrates three types of event chains: Hybrids, Coincidental and Cascading.

In evaluating events, there are several important considerations. Two of these are: 1) the cause must be clearly understood to avoid missing common causes to other events (rather than assuming they are independent or coincidental) and 2) understanding the ability to detect the events that appear earlier in the chain. Inability to detect does not mean that those events don’t exist (the “head in the sand” syndrome).

In workshops, the power of this technique comes out when a cross-functional team is brought together to “understand the business” and how problems arise. Even if a small SME team could draw the diagrams, doing this in relative isolation misses the big benefit – to focuse the organization on problems and build buy-in for fixes.

 

 
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