Using Bayesian networks to predict op risk

By combining qualitative and quantitative data, Bayesian networks offer the perfect solution to the compelling need for an integrated approach to operational risk management, say Martin Neil and Ed Tranham.

All organisations can be positioned on a notional risk continuum, with increasing vulnerability at one end and increasing resistance to danger at the other. The position of an organisation within this risk continuum is completely determined by the quality of the processes used to combat its operational threats.

Bayesian networks or causal models can be used to build an enterprise-wide model of an organisation’s operational vulnerabilities and risks. The English mathematician Thomas Bayes

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