Via ODiSy March 22, 2012 PHILIPPINE STOCK EXCHANGE ... - BDO

- 67 -4.03 Operational RiskOperational risk is the risk of loss due to BDO Unibank Group’s:• Failure to comply with defined operational procedures;• Inability to address fraud committed internally or externally;• Inability to handle system failures; and,• Inability to cope with the impact of external events.BDO Unibank Group manages its operational risks by instituting policies to minimizeits expected losses, allocating capital for the unexpected losses, and having insuranceand/or a business continuity plan to prepare for catastrophic losses.FrameworkTrue to its commitment to sound management and corporate governance, BDOUnibank Group considers operational risk management as a critical element in theconduct of its business. Under BDO Unibank Group’s Operational RiskManagement (ORM) framework, the BOD has the ultimate responsibility forproviding leadership in the management of risk in BDO Unibank Group. In 2011,the Group adopted a process-driven approach whereby it focuses on mappingoperational risks along critical/key business processes. The business process owners,as risk owners, are responsible for identifying, assessing and limiting the impact of riskin their businesses/operations. The RMG provides the common risk language andmanagement tools across BDO Unibank Group as well as monitors theimplementation of the ORM framework and policies.Alongside the shift to the process-driven ORM approach in 2011, the Group alsoadopted the periodic Risk and Control Self-Assessment (RCSA) process so thatbusiness process owners could document both their operational risks and controlmechanisms they have put in place to manage those risks. This ORM tool allows theGroup to identify risks the business/operation faces, assess the severity of those risks,evaluate the adequacy of key controls associated to the identified risks, and takeproactive action to address any deficiencies identified.The BDO Unibank Group also continues to use Key Risk Indicators (KRI) as alertsfor operational risk vulnerabilities.The BDO Unibank Group continues to expand its operational loss database to covermore loss event categories as defined by Basel II.Operational risks arising from health, safety and environmental issues areappropriately managed through policies and measures that are integrated into theBDO Unibank Group’s day-to-day operations. These include EnvironmentalConsciousness, Occupational Health and Safety, and Community Health and Safety.