People-value at riska key performance indicator (KPI) four sound management in financial institutions

Zusammenfassung

People are arguably the most important asset for companies, but they are also a source of risk. People-risk involves both intentional and unintentional behavior, which results in losses for firms. The 2008 global financial crisis has brought into light the vulnerability of the global financial system to moral hazard and demonstrated the relevance of business ethics. Therefore, the main goals of this paper are twofold: to identify four different people-risk categories (Internal Fraud, Employment Practices and Workplace Safety, Clients, Products and Business Practices and Execution, Delivery and Process Management), and to quantify the exposure to such risk by applying the concept of People-Value at Risk (People-VaR) as a new key performance indicator (KPI) for sound management in financial institutions. Thereafter, the traditional Risk Adjusted Return on Capital (RAROC) is also calculated in order to evaluate financial risk-adjusted performance; both measures are useful inputs for bank�s Balance Scorecard (BSC) and for monitoring shareholders� value creation