What Is Operational Risk Management?
Operational risk management (ORM) is a process of identifying, assessing, and mitigating the risks associated with an organization’s operations. It is a proactive approach to managing potential risks and minimizing their impact on the organization’s bottom line. ORM is an integral part of any successful enterprise risk management (ERM) program.
Benefits of Operational Risk Management
The benefits of operational risk management include:
• Improved efficiency and productivity
• Enhanced customer service
• Reduced financial losses
• Better compliance with regulations
• Improved decision-making
• Reduced operational costs
• Increased organizational resilience
• Improved risk awareness
Identifying Operational Risks
The first step in operational risk management is to identify potential risks. This includes identifying the sources of risk, such as external factors, internal processes, and human error. It is important to consider both the likelihood and the potential impact of each risk.
Assessing Operational Risks
Once the risks have been identified, they must be assessed. This involves analyzing the potential impact of each risk and assigning a risk rating. The rating should reflect the severity of the risk, as well as the probability of it occurring.
Mitigating Operational Risks
Once the risks have been identified and assessed, it is important to develop strategies to mitigate them. This could involve implementing new processes, procedures, and controls, or introducing new technologies. It is also important to regularly review and update these strategies as the organization’s operations evolve.
Monitoring Operational Risks
It is important to regularly monitor operational risks to ensure that the strategies implemented to mitigate them are effective. This could include conducting regular audits, reviews, and tests. It is also important to ensure that any changes to the organization’s operations are reflected in the risk management plan.
Reporting Operational Risks
Organizations should develop a process for reporting operational risks to senior management. This should include regular reports on the status of the organization’s risk management plan and any changes that have been made.
Training and Education
It is important to ensure that all staff are aware of the organization’s operational risk management plan and the procedures they should follow in the event of a risk. This could involve providing training and education on the plan, as well as regular refresher courses.
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Operational risk management is an essential part of any successful enterprise risk management program. It involves identifying, assessing, and mitigating the risks associated with an organization’s operations. It is important to regularly monitor and report on the organization’s risks, as well as provide training and education to staff on the organization’s risk management plan.