Understanding Operational Risk Management

Operational risks are inevitable when conducting a business. The unintentional risks such as small control risks, process failures, or external disruptions can amount to larger risk materialisation and firm-wide failures. Operational risk management is a strategy through which operational risks can be identified, assessed, prioritised, and mitigated before they turn into large-scale losses.  

What are Operational Risks?  

Operational risks can originate from internal as well as external sources – employee conduct, third parties, data infringement, business processes, natural disasters, political disturbances, cybersecurity risks, and data theft.  

Imagine scenarios such as: 

  • A Denial-of-service attack on public sector bank’s core banking service.  
  • A fire at a manufacturing facility of a textile industry resulting in a production halt and disrupting the supply chain.  
  • A bank clerk manipulating customer accounts for personal gain.  

In all these situations, small operational risks can have devastating effects on an organisation’s financial health, reputation, and operational continuity.  

What is Operational Risk Management? 

Operational Risk Management is a process through which risks can be minimised from an organisation’s day-to-day operations and business flows. It helps build organisational resilience and ensure operational continuity.  

The Operational Risk Management process involves: 

  • Risk Identification: Identifying potential risks that may impact the operations.  
  • Risk Assessment: Evaluating the likelihood and level of impact of the identified risks on business operations.  
  • Risk Prioritisation: Prioritising risks according to their impact.  
  • Risk Mitigation: Developing and implementing strategies to reduce or eliminate the risks.  
  • Monitoring and Review: Continuous monitoring of the effectiveness of risk-mitigating strategies in force and improving the process by identifying loopholes.  

Why is Operational Risk Management crucial? 

In the era of rapid transformation – digital inclusion, infrastructure expansion, financial decentralisation, and smart governance, the rise of varied risks is inevitable. Operational risk management is a must as regulators all across the world are pushing for stricter compliance and rules. In a digital world, one mistake can result in a significant loss of reputation and goodwill.  As more and more organisations adapt to the digital world, tech-enabled risks are inevitable. Operational risk management helps put in place standard operating procedures while ensuring backups and redundancies.  

Challenges? 

One of the key challenges faced by organisations is to support a risk-aware culture that ensures risk accountability and understanding of operational risk losses. The Operational risk management process is often considered a complex and reactive function. Businesses often view it as a compliance measure and not as a proactive risk-mitigating process. Furthermore, a lack of cross-functional communication leads to a gap in the implementation of risk-mitigating strategies. 

A comprehensive operational risk management process is crucial for any organisation to deal with everyday risks. Whether there is a protest near a manufacturing plant in Gurgaon or a flood in Chennai where your data center is located, operational risk management is a survival tool. Operational risk management helps build resilience, promote accountability, and enable data-driven strategic decisions.  

Your Trusted Security Partner – MitKat 

For effective operational risk management, a risk intelligence tool is a must to provide accurate, reliable, and quick intelligence. A risk monitoring platform such as MitKat’s datasurfr can help businesses equip with actionable insights to deal with everyday risks. MitKat’s datasurfr provides actionable threat intelligence across 12 non-financial risks including political, extremism, civil disturbance, crime, health, natural hazard, environmental, infrastructure, regulatory, technology, and travel.   

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