Goldman Sachs 2012 Annual Report Download - page 105
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Management’s Discussion and Analysis
Risk Measurement
We measure the firm’s operational risk exposure over a
twelve-month time horizon using both statistical modeling
and scenario analyses, which involve qualitative assessments
of the potential frequency and extent of potential operational
risk losses, for each of the firm’s businesses. Operational risk
measurement incorporates qualitative and quantitative
assessments of factors including:
‰internal and external operational risk event data;
‰assessments of the firm’s internal controls;
‰evaluations of the complexity of the firm’s
business activities;
‰the degree of and potential for automation in the
firm’s processes;
‰new product information;
‰the legal and regulatory environment;
‰changes in the markets for the firm’s products and
services, including the diversity and sophistication of the
firm’s customers and counterparties; and
‰the liquidity of the capital markets and the reliability of
the infrastructure that supports the capital markets.
The results from these scenario analyses are used to
monitor changes in operational risk and to determine
business lines that may have heightened exposure to
operational risk. These analyses ultimately are used in the
determination of the appropriate level of operational risk
capital to hold.
Risk Monitoring
We evaluate changes in the operational risk profile of the
firm and its businesses, including changes in business mix
or jurisdictions in which the firm operates, by monitoring
the factors noted above at a firmwide level. The firm has
both detective and preventive internal controls, which are
designed to reduce the frequency and severity of
operational risk losses and the probability of operational
risk events. We monitor the results of assessments and
independent internal audits of these internal controls.
Recent Accounting Developments
See Note 3 to the consolidated financial statements for
information about Recent Accounting Developments.
Goldman Sachs 2012 Annual Report 103