1. RISK EVENT Iisaaksiichaa Ross Braine Mid-Career MSIM Candidate
IMT 556A
February 5, 2015

2. Basel II Operational Risk Event Categories
INTERNAL LOSS DATA – RISK EVENT CATEGORIES
Basel II Operational Risk Event Categories
Event-Type Category (Level 1)
Definition
Internal Fraud
losses due to acts of a type intended to defraud, misappropriate property, or circumvent regulations, the law, or company policy, excluding diversity/discrimination events, which involves at least one internal party
External Fraud
losses due to acts of a type intended to defraud, misappropriate property, or circumvent the law, by a third party
Employment Practices and Workplace Safety
losses arising from acts inconsistent with employment, health, or safety laws or agreements, from payment of personal injury claims, or from diversity/discrimination events
Clients, Products, and Business Practices
losses arising from an unintentional or negligent failure to met a professional obligation to specific clients (including fiduciary and suitability requirements), or from the nature or design of a product
Source: Girling, P. Operational Risk Management: A Complete Guide to a Successful Operational Risk Framework. Hoboken, NJ: Wiley, 2013.

3. Basel II Operational Risk Event Categories
INTERNAL LOSS DATA – RISK EVENT CATEGORIES (Continued)
Basel II Operational Risk Event Categories
Event-Type Category (Level 1)
Definition
Damage to Physical Assets
losses arising from loss or damage to physical assets from natural disaster or other events
Business Disruption and System Failures
losses arising from disruption of business or system failures
Execution, Delivery, and Process Management
losses from failed transaction processing or process management, from relations with trade counterparties and vendors
Source: Girling, P. Operational Risk Management: A Complete Guide to a Successful Operational Risk Framework. Hoboken, NJ: Wiley, 2013.

4. VIDEO

5. MELTDOWN AT CHERNOBYL BUILD UP TO MELTDOWN
1978 USSR unveils the first nuclear reactor near Chernobyl
Sustained construction until 1983 when reactor No. 4 goes online
April 25, 1986, No. 4 is scheduled to reduce production to half-power for routine maintenance
During this lull, there is an experiment to test emergency equipment and cooling pumps
Equivalent to airline pilots experiment with a plane’s engines in midflight
Process goes wrong at approximately 11:00 p.m.
Operators allow power production to drop too low
At 1:00 a.m. reactor stabilizes
1:23 a.m. rods rupture and react with steam from coolant system, once the uranium comes in contact, boom!
Source: Abkowitz, M. Operational Risk Management: A Case Study Approach to Effective Planning and Response. Hoboken, NJ: Wiley, 2008.

6. MELTDOWN AT CHERNOBYL LOCAL IMPACTS
Nearby town, Pripyat, was not officially informed for 36 hours
By the following week, 130,000 people were evacuated from a 19-mile area surrounding the site
For 12 days radioactive material was released into upper atmosphere
First media coverage didn’t occur until April 29
April 27-May 4 – responders fought blazes
May 15 and 16 – new fires ignited
200,000 workers were exposed to high radiation levels
600,000 people would be involved in the cleanup
$200 billion each in damages for Ukraine and Belarus
Source: Abkowitz, M. Operational Risk Management: A Case Study Approach to Effective Planning and Response. Hoboken, NJ: Wiley, 2008.

7. MELTDOWN AT CHERNOBYL WORLDWIDE IMPACTS
Radioactive plume spreads worldwide
Most nations had no contingency plan for radiation threat
Major issues with childhood leukemia and adult cancer cases, some may not appear for 30 years…or 2016
Sweden lost an estimated $144 million
Austria lost an estimated $80 million
Poland was hurt due to bans on potentially contaminated foods
UK lost millions in livestock
Source: Abkowitz, M. Operational Risk Management: A Case Study Approach to Effective Planning and Response. Hoboken, NJ: Wiley, 2008.

8. MELTDOWN AT CHERNOBYL HOW DID THIS HAPPEN? Human Error
Schedule Constraints
Poor Design
Use of a graphite moderator which allowed the fission process to spiral out of control
No way to deal with major power surge
No containment structure
Inability to follow standard operating practices
Soviet government wanted to preserve national honor
Propaganda used to motivate cleanup crews
Citizens were forbidden to use measurement devices that checked radiation exposure
Source: Abkowitz, M. Operational Risk Management: A Case Study Approach to Effective Planning and Response. Hoboken, NJ: Wiley, 2008.

9. MELTDOWN AT CHERNOBYL RESULTS Safety inspectors increased
More stringent requirements
New technology
Enhanced training and better equipped responders
International early-warning system
At Cherynobyl
Did not build two more reactors
Decommissioned, December 15, 2000
Source: Abkowitz, M. Operational Risk Management: A Case Study Approach to Effective Planning and Response. Hoboken, NJ: Wiley, 2008.

10. WHICH RISK EVENT CATEGORY DOES THIS FALL UNDER?
THOUGHTS
WHICH RISK EVENT CATEGORY DOES THIS FALL UNDER?
Internal Fraud
External Fraud
Employment Practices and Workplace Safety
Clients, Products, and Business Practices
Damage to Physical Assets
Business Disruption and System Failures
Execution, Delivery, and Process Management
Source: Girling, P. Operational Risk Management: A Complete Guide to a Successful Operational Risk Framework. Hoboken, NJ: Wiley, 2013.

11. REFERENCES
Girling, P. Operational Risk Management: A Complete Guide to a Successful Operational Risk Framework. Hoboken, NJ: Wiley, 2013.
Abkowitz, M. Operational Risk Management: A Case Study Approach to Effective Planning and Response. Hoboken, NJ: Wiley, 2008.