Operational Risk refers to the potential loss arising from inadequate or failed internal processes, systems, people, or external events.
ORM attempts to reduce risks through the linear process of risk identification, risk assessment, mitigation, monitoring, and reporting
Risk Identification
The process of recognizing potential risks in an organization's operations. This is like a detective's job, where you search for potential risks in your organization. For instance, you might discover that a key supplier has a history of inconsistent deliveries, potentially disrupting your production schedule.
Risk Assessment
After identifying risks, you assess the likelihood and impact. Imagine you're a weather forecaster predicting the chances of rain (likelihood) and how wet you might get (impact) at your outdoor event.
Risk Mitigation
Developing strategies to reduce or manage high-priority risks to an acceptable level. It is like adding a roof to your outdoor event to mitigate the rain risk, and then implement controls like having umbrellas in case of unexpected showers.
Monitoring
This is your organizational radar system. Just like air traffic controllers track planes in the sky, you continually watch for changes in your operational landscape, making sure your risk management strategies remain relevant and effective. It's like adjusting flight plans due to turbulence, ensuring a smoother journey.
Risk Reporting
In this step you collect data on identified risks, their assessments, mitigation efforts, and the effectiveness of controls, and then create reports to inform key stakeholders and ensure they have the necessary information to make informed decisions.
Proactive ORM enhances efficiency, safeguards your reputation, and protects your bottom line. How is your organization addressing operational risk?