Operational risk management is a process of identifying, evaluating, measuring, mitigating, and monitoring risks to reduce the potential for losses. It is an organizational imperative that can help increase visibility of senior management and encourage more informed risk-taking. Integrating ORM strategy, tools, and processes into your organization's objectives can improve product performance, increase brand recognition, and generate sustainable financial results. Organizations strive to create a culture of risk that enhances accountability for risks, encourages the organization to take risks appropriately, and understands losses due to operational risk.
These risks can be mitigated through internal controls, training programs, and policies designed to prevent losses or minimize their impact when they occur. Deloitte's financial and risk consulting helps organizations turn critical and complex operational risks into opportunities for growth, resilience, and long-term benefits. In the United States, Deloitte refers to one or more of the U. S. member firms of DTTL, their related entities operating under the Deloitte name in the United States, and their respective subsidiaries.
Regardless of the cause, it is important to have a plan in place to minimize the impact that any type of operational risk may have on your company. The Board of Directors is responsible for establishing, approving, and periodically reviewing the operational risk framework to ensure its effectiveness. The Basel II agreement on banking supervision defined operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. People who play the right decision-making role must understand the risk, allocate appropriate resources to reduce it, and implement the necessary controls. From keeping operations up to date with legal regulations to paying employees and suppliers on time, excellent processes serve a purpose, avoid redundancy and offer known value. However, daily operational risks are under the organization's control and can be managed through excellent processes.
Some of the most common challenges that organizations face in determining and mitigating operational risk include:
- Lack of understanding of operational risks
- Inadequate resources allocated to manage operational risks
- Inadequate communication between departments
- Lack of clarity in roles and responsibilities
- Inadequate data collection
