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Questions and Answers
What is operational risk management primarily concerned with?
Which of the following is an example of an internal operational risk?
What is the primary goal of risk assessment in operational risk management?
What is risk transfer in operational risk management?
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Which of the following is a best practice for operational risk management?
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What is the purpose of risk monitoring and review in operational risk management?
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What type of operational risk is associated with natural disasters?
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What is the primary goal of risk mitigation in operational risk management?
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What is the primary objective of Business Continuity in operational risk management?
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Which of the following is a key component of Business Continuity?
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What is the purpose of a Business Continuity Plan (BCP)?
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What is the first step in the Business Continuity Planning Process?
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What is one of the benefits of Business Continuity in operational risk management?
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What is Crisis Management in Business Continuity?
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What is the purpose of Business Impact Analysis (BIA) in Business Continuity?
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What is the last step in the Business Continuity Planning Process?
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Study Notes
Definition and Importance
- Operational risk management (ORM) refers to the practice of identifying, assessing, and mitigating risks that can affect an organization's operations, reputation, and financial performance.
- ORM is essential to ensure business continuity, protect assets, and maintain stakeholder trust.
Types of Operational Risks
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Internal Risks:
- People risks (e.g., human error, fraud, misconduct)
- Process risks (e.g., inadequate procedures, technology failures)
- Systems risks (e.g., IT failures, data breaches)
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External Risks:
- Event risks (e.g., natural disasters, pandemics)
- External fraud risks (e.g., cyberattacks, vendor fraud)
Operational Risk Management Framework
- Risk Identification: Identify potential operational risks through techniques like brainstorming, SWOT analysis, and root cause analysis.
- Risk Assessment: Assess the likelihood and impact of identified risks to prioritize mitigation efforts.
- Risk Mitigation: Implement controls and strategies to mitigate or reduce operational risks.
- Risk Monitoring and Review: Continuously monitor and review operational risks to ensure effective mitigation and update risk assessments.
Operational Risk Management Strategies
- Risk Avoidance: Eliminate or withdraw from risky activities or processes.
- Risk Transfer: Shift risks to other parties through outsourcing, insurance, or hedging.
- Risk Mitigation: Implement controls and procedures to reduce risk likelihood or impact.
- Risk Acceptance: Accept and monitor risks that are deemed acceptable or unavoidable.
Best Practices for Operational Risk Management
- Establish a risk management culture and policy.
- Identify and prioritize critical business processes and assets.
- Conduct regular risk assessments and reviews.
- Implement effective incident response and business continuity plans.
- Continuously monitor and update risk management strategies.
Operational Risk Management (ORM)
- ORM is the practice of identifying, assessing, and mitigating risks that can affect an organization's operations, reputation, and financial performance.
- It is essential to ensure business continuity, protect assets, and maintain stakeholder trust.
Types of Operational Risks
Internal Risks
- People risks: human error, fraud, misconduct
- Process risks: inadequate procedures, technology failures
- Systems risks: IT failures, data breaches
External Risks
- Event risks: natural disasters, pandemics
- External fraud risks: cyberattacks, vendor fraud
Operational Risk Management Framework
Risk Identification
- Techniques used: brainstorming, SWOT analysis, root cause analysis
Risk Assessment
- Assess likelihood and impact of identified risks
- Prioritize mitigation efforts
Risk Mitigation
- Implement controls and strategies to mitigate or reduce operational risks
Risk Monitoring and Review
- Continuously monitor and review operational risks
- Ensure effective mitigation and update risk assessments
Operational Risk Management Strategies
Risk Avoidance
- Eliminate or withdraw from risky activities or processes
Risk Transfer
- Shift risks to other parties through outsourcing, insurance, or hedging
Risk Mitigation
- Implement controls and procedures to reduce risk likelihood or impact
Risk Acceptance
- Accept and monitor risks that are deemed acceptable or unavoidable
Best Practices for Operational Risk Management
- Establish a risk management culture and policy
- Identify and prioritize critical business processes and assets
- Conduct regular risk assessments and reviews
- Implement effective incident response and business continuity plans
- Continuously monitor and update risk management strategies
Business Continuity in Operational Risk Management
Definition and Purpose
- Business Continuity is a process that ensures an organization's ability to continue operating and delivering its products and services at an acceptable level, following a disruption or disaster.
Key Components
- Business Impact Analysis (BIA) identifies critical business processes, assesses the impact of disruptions, and determines the minimum resources required to recover.
- Risk Assessment identifies potential risks and threats to business continuity, prioritizing them based on likelihood and impact.
- Business Continuity Plan (BCP) is a documented plan outlining procedures to respond to disruptions, ensure continuity of critical business processes, and restore operations.
- Crisis Management is a framework for managing and responding to crises, ensuring effective communication and decision-making.
Business Continuity Planning Process
- The planning process involves six stages: Risk Identification, Business Impact Analysis, Strategy Development, Plan Development, Plan Implementation, and Plan Testing and Maintenance.
Benefits of Business Continuity in Operational Risk Management
- Business Continuity reduces downtime, minimizing the impact of disruptions on business operations and revenue loss.
- It enhances organizational resilience, ensuring the ability to respond to and recover from disruptions.
- Business Continuity improves reputation, demonstrating a commitment to customers and stakeholders, and enhancing credibility.
- It helps organizations comply with regulatory requirements and industry standards.
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Description
Learn about operational risk management, its importance, and types of risks that can affect an organization's operations, reputation, and financial performance.
