Untitled Quiz

Operational Risk Management (ORM)

• Definition: Processes, methods, & tools to identify, assess, monitor, & mitigate operational risks.
• Focus: Risks arising from people, processes, systems, or external events.
• Importance: Ensures organizational function even during disruptions.
• Key Components:
  • Risk Identification: Identifying sources of risk within the organization. Examples include human error, system failures, internal processes, and external events (e.g., natural disasters, regulatory changes).
  • Risk Assessment: Evaluating the potential impact and likelihood of identified risks. Tools like risk matrices, fault tree analysis, and failure modes and effects analysis (FMEA) are used.
  • Risk Mitigation and Control: Developing strategies to minimize the impact of risks. Includes redesigning processes, enhancing system security, staff training, or improving compliance.
  • Risk Monitoring: Continuously monitoring risks and controls to ensure effectiveness. Establishing key risk indicators (KRIs) and regularly reviewing processes and performance metrics are critical.
  • Risk Reporting: Reporting operational risks to relevant stakeholders. May be done through dashboards, risk committees, or other governance structures that inform senior management and the board.
  • Incident Management: Responding to operational incidents when they occur, documenting lessons learned, and adjusting processes to prevent future incidents.

Types of Operational Risks

• Process Risks: Risks arising from failed or inadequate internal processes.
  • Examples: Data entry errors, mismanagement of resources, inefficient workflows, failure in operational controls, inadequate monitoring, failure to follow procedures.
• People Risks: Risks related to human resources, including staff behavior, errors, or malicious activities.
  • Examples: Employee errors or negligence, fraud or collusion, inadequate staffing, failure to train employees properly, unauthorized actions, breaches of protocol.
• Systems Risks: Risks related to failures in technology or IT infrastructure.
  • Examples: System outages or downtime, cyberattacks or data breaches, software glitches, bugs, or system failures, incompatibility between systems after integration or upgrades.
• External Event Risks: Risks arising from external events that impact the organization’s operations.
  • Examples: Natural disasters (earthquakes, floods, etc.), regulatory changes or compliance risks, terrorist attacks or political instability, third-party failures (vendor risk, supply chain disruptions).
• Legal & Compliance Risks: Risks associated with non-compliance with laws, regulations, or internal policies.
  • Examples: Breach of data privacy regulations, fines and penalties due to non-compliance, legal actions or lawsuits, failure to adhere to contractual obligations.
• Reputational Risk: Risks related to the organization’s reputation or standing in the market.
  • Examples: Negative media coverage due to operational failures, loss of customer trust following a data breach or fraud, social media backlash.