Operational Risk Management

Abstract

This chapter will examine operational risk management as a distinct field within the practice, defined as the process of selecting and applying a basic risk management framework to the common risks faced by organizations in conducting their commercial, nonprofit or government service operations. Differences and similarities between operational risk management and legal, financial, market and regulatory risk management will be addressed. Integration with enterprise risk management will be defined and assessed. Discussions will then include how to select the appropriate risk framework, adapt it to a specific enterprise, identify organizational objectives, define risks and then apply the appropriate risk management methods and controls. The chapter will identify and assess the threats to success in an operational risk management program, such as challenges in risk quantification, organizational silos, incomplete or inadequate information, biases in communication and crisis/risk fatigue within an organization. The chapter will conclude with the proper documentation of the risk management program, measurement of effectiveness and the continuous improvement of the risk management process.