Abstract
Decision making and management are synonyms. Banks are facing a number of business risks and operational risk is prevalent. Risk management is related to making decisions;therefore, it is important for the whole organization. The aim of this paper is to develop a decision-making system when choosing the method of operational risk management by using the Analytical Hierarchical Process (AHP). AHP is an efficient process in solving decision-making problems. The final decision depends on the evaluation of a set of alternatives and decision criteria. Therefore, AHP defines the criteria related to operational risk and the alternatives that the bank management can undertake in order to successfully manage operational risk. The main purpose of the process is to find appropriate solutions for defined user factors in the current competitive environment. The results, obtained by the classical numerical method show that External Factors is the dominant criterion, especially during the financial crisis or the Covid pandemic, and that solutions should be sought in international standards along with using the control tools created by banks themselves. © 2021, Strojarski Facultet. All rights reserved.
Highlights
While the banks are focused on financial risk management systems such as credit risk, foreign exchange risk, interest rate risk, market risk, recently, they have started facing a problem regarding operational risk
The aim of this paper is to develop a decision-making system when choosing the method of operational risk management by using the Analytical Hierarchical Process (AHP)
The phase regarding the choice of means/tools for managing the application of the AHP model was the development of the hierarchy of the problem
Summary
While the banks are focused on financial risk management systems such as credit risk, foreign exchange risk, interest rate risk, market risk, recently, they have started facing a problem regarding operational risk. Operational risk is the risk that arises as the result of failures in the work of employees, inadequate procedures and processes in a bank, inadequate information management and other systems in a bank, as well as due to unforeseen external events (terrorism, crime, natural disasters, pandemics, cyber-attacks, crises). This risk negatively affects financial results and the capital of a bank to a greater extent than it might have seemed at first glance when analysing economic, quantitative indicators of banks, such as ROE, ROA, assets, etc
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