1-2 Final Project Milestone
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1-2 Final Project Milestone One: Develop an Operational Risk Management Proposal
Anastasia Bolinaga
Southern New Hampshire University
DAT 610: Optimization and Risk Assessment
Professor Kyle Camac
March 2, 2024
2
1.
Organizational Background and Goals
Using the most recent data analytics techniques, XYZ, a property and casualty insurance firm, has already developed robust risk management systems for the areas of market, credit, and insurance risks. The company leadership decided to create an operational risk management program after realizing that operational losses were higher
than expected as a result of fraudulent claims from car accidents and personal injury claims (SNHU DAT-610-Module One, 2024). Operational risk is defined as “the risk of loss resulting from inadequate or failed processes, people and systems or from external events” (Girling, 2022). This program is anticipated to function at the same high caliber
as the current credit, market, and insurance risk programs. All programs are to be reported to a single Chief Risk Officer (CRO) in a standardized consolidated way (SNHU DAT-610-Module One, 2024).
2.
Established Programs, Policies, Strategies, and Practices
When it comes to the operational risk analysis, XYZ currently utilizes a special investigations unit (SIU) for investigating claims that are flagged to be potentially fraudulent since most operational losses come from this category (SNHU DAT-610-
Module One, 2024). Investigating suspicious claims is in line with industry standards as
all insurance companies now prioritize preventing fraud. It was estimated that the US pays out about one-fifth of auto insurance claims to fraudsters every year (Aslam et al., 2022). The main challenge that XYZ is facing is that their SIU is not capable of handling all incoming suspicious claims in a timely fashion. Another challenge is that currently there is no process on ranking the incoming suspicious claims to categories from least to most suspicious or from lower to higher claim cost. This prevents SIU
3
from prioritizing the claims to be investigated (SNHU DAT-610-Module One, 2024). Finding fraud in an automated, high-volume online transaction processing environment without compromising automation's benefits in terms of effectiveness, speed, and customer service is one of the main issues facing modern fraud detection (Viaene et al., 2007).
3.
Recommended Techniques and Practices
It is recommended to establish an automated process of detecting high fraud risk and suspicious claims with high cost to be automatically given to SIU for processing. There should also be a process for managers or supervisors of claim handling departments to forward suspicious claims outside of these categories to SIU. Claims worked by SIU should not be allowed to be paid without SIU’s approval which can be accomplished by
assigning specific claim flags in the Fraud Detection system, e.g., “Fraud”, “NoFraud”, “Suspicious Fraud but not proven”, etc. (Stavrinoudakis, 2018). Insurance fraud identification has always been difficult, mostly because of the skew known as class imbalance, which occurs because the frequency of frauds is much lower than the total number of claims and each instance of fraud is unique in its own way. Another obvious challenges in fraud detection are missing data or hard to evaluate categorical data. Numerous studies show that algorithm quality is not as important to forecast accuracy as the quantity and quality of data that is accessible, that is why it is also recommended to perform an audit of the existing data for data accuracy and completeness (
Predictive Analytics for Insurance Fraud Detection
- WiPRO, n.d.).
The importance of adopting automated fraud detection techniques should not be underestimated. The most recent ABI data on detected general insurance fraud shows
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Project Structure
Tasks
Index
Index
A
B
C
D
E
F
G
H
I
J
A
B
C
D
E
F
G
H
I
J
Market Research
Cost Analysis
Product Design
Development Analysis
Developing Product Model
Filing Contracts
Product Testing
Pricing
Sales/Marketing Planning
Sales Force Training
Tasks
Market Research
Cost Analysis
Product Design
Development Analysis
Develop Product Model
Filing Contracts
Product Testing
Pricing
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Cost Structure
Immediate
Predecessors
10
8
12
10
8
6
4
.
Normal Expedited Normal
Duration
Duration
Cost
8
5
4
3
12
10
7
6
7
8
5
4
3
A, B
C
D
E
E
E
G, H
A, E, I
1.Network representation?
2.Critical path?
3. Non critical activities?
$100,000
$64,000
$76,800
$80,000
$64.000
$96,000
$120,000
$56,000
Duration
(in week)
8
12
10
8
12
10
8
6
$38,400
$32,000
4
Expedited Cost/
Cost
week
$145,000
$15,000
$82,000
18000
$112,000
17600
$106,400
8800
13600
5440
8000
7000
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Do Homework - Chapter 8 Homework Profile 1 Microsoft Edge
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BBA 370 spring 22
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Homework: Chapter 8
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Question 5, Problem 8.5
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Subway, with more than 27,000 outlets in the U.S., is planning for a new restaurant in Buffalo, New York. Three locations are being considered. The following table
gives the factors for each site.
Factor
Weight
Maitland
Baptist Church
Northside Mall
Space
0.25
55
75
85
Costs
0.25
35
85
35
Traffic density
0.20
50
80
65
Neighborhood income
0.15
45
75
40
Zoning laws
0.15
75
25
85
a) Based on the given information, the best location in Buffalo for Subway to open the new restaurant is
with a total weighted score of
(Enter
your response rounded to two decimal places.)
Northside Mall
Baptist Church
Maitland
Clear all
Check…
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