Operational Risk Management must be inquired about by any cybersecurity or IT security examination candidate. In the discipline, it is realized through the identification, assessment, and mitigation of risks that occur due to the normal performance of business operations.
I come to realize it is much more than preventing loss as I engage with the discussion-there’s business continuity and overall resilience through effective operational risk management. In this article, I’ll explain the essential elements of management of operational risk and try to connect examples and situations to each idea so that it is more relatable.
What are Objectives of Operational Risk Management?
ORM reduces a firm’s operational risks by reducing the potential occurrence of risks and hazards linked with day-to-day activities. Processes, people, and systems are some of the risk categories that a company may have.
For instance, a manufacturing firm may strive for minimal occurrences of risks regarding equipment breakdowns through frequent maintenance schedules and employee training programs. Ultimately, these objectives assist organizations to increase their effectiveness in operation and safeguard their resources.
Integrating Risk Management with Business Continuity Planning
Operational risk management is directly related to business continuity planning. Business continuity planning ensures that an organization continues critical operations in the face of any kind of disruption.
A financial institution, for instance, can have a BCP that details backup systems, alternative communication channels, and other mechanisms to ensure service continues during the event of a cyber attack. Thus, integration can ensure that organizations are ready to address both expected as well as unexpected disruptions.
Third-Party Risk Management
In the interlinked world of today, third-party risk management is an extremely important aspect. Organizations mostly work with vendors that provide a variety of services, which raises the risk.
For instance, a health care provider may use cloud service providers so that they can store all the data of their patients. A breach of data with the vendor would affect the healthcare provider with major reputational damage and legal penalties. The security posture of third vendors has to be assessed for proper ORM.
Using the Risk Register
A Risk Register is an essential element of operational risk management. It aids in managing the risks identified with their assessments and mitigative strategies within one place.
For example, an IT company can maintain a risk register that provides risks about software vulnerabilities, employee errors, and compliance issues. An updated register will help organizations keep track of their risk landscape so that they might be prioritizing mitigation efforts.
Risk Management in Other Processes
In order to have an efficient ORM, it is crucial that the process be integrated with other organizational procedures like project management and strategic planning. By incorporating risk management into other processes, organizations should be able to create controls for most stages with identified risks.
For instance, when designing a new product, a technology firm may carry out a risk assessment for potential operational pitfalls at launch time.
Following up and Reporting on Risks
Continuous monitoring and reporting are parts of operational risk management. Organizations need to continually analyze their risk landscape and determine whether they effectively manage risk or not.
Using a real-time monitoring system, a retail chain can monitor anomalies in transaction patterns that would enable it to detect fraud. They ensure periodic reporting so the stakeholders remain aware of the actual status of risks at hand and what to do appropriately .
Key Risk Indicators (KRIs)
A Key Risk Indicator is a measure calculated to monitor potential risks across an organization. These indicators enable the tracking of the level of exposure to specific risks that a firm faces over time.
A logistics company may track some KRIs, such as delayed deliveries or vehicle breakdowns, in order to analyze whether its operations are being carried out effectively. With these metrics, organizations can take necessary steps to minimize identified risks.
Training and Awareness Programs
Training and awareness programs have a prominent position in developing the risk-aware culture within an organization. Employees must understand the importance of operational risk management and their role in mitigating those risks.
For instance, regular training or presentations regarding data protection practice would help an employee of a financial services firm be alert about phishing attacks, which would help keep potential cyber threats at bay.
Documentation
It is crucial for effective operational risk management. Documentation will be done in terms of risk assessments, risk mitigation strategies, and lessons learned from incidents previously encountered.
For example, an organization that has experienced a data breach should document the incident and response actions taken as well as recommendations for future prevention. This helps with compliance as well but is an invaluable resource toward continuous improvement.
In essence, gaining mastery over Operational Risk Management is crucial to anyone who would wish to present himself or herself to appear for a cybersecurity or IT security exam. At the same time, when the purposes are understood and integrated into business continuity planning, third-party risks, application of tools, such as a risk register, monitoring practices, KRIs, training programs, and documentation means, one comes to appreciate how all these things build together resilient organizations that can navigate today’s complex risk landscape.