What is operational risk management?

Written By
Joakim Stenström
Joakim Stenström
Published
September 28, 2023
Topic
Risk management

Operational Risk Management (ORM) is a crucial component of a company's overall strategy. It involves identifying, assessing and managing threats or uncertainties that may adversely affect the company's operations. International standards such as ISO 9001, ISO 14001, ISO 45001 and ISO 31000 provide a robust framework for implementing an effective ORM system.

What is operational risk management according to ISO standards?

According to ISO 9001, operational risks are defined as potential losses due to inadequate or failed internal processes, people and systems, or external events. ISO 14001 focuses on operational risks related to environmental management, while ISO 45001 concentrates on occupational health and safety risks.

ISO 31000, the standard for risk management, provides a general framework for identifying, assessing, managing and communicating risks at all levels and functions of an organization. This standard is the basis for how risk management is viewed and managed within ISO 9001, ISO 14001 and ISO 45001.

Office setting

Why is ORM important?

ORMs enable companies to proactively manage uncertainties that could disrupt operations. It helps prevent financial losses, protect the company's reputation, comply with laws and regulations, protect the environment and the health and safety of workers.

In addition, ORM is an integral part of ISO standards. ISO 9001 requires companies to establish a quality management system that manages risks that affect product or service quality. ISO 14001 requires an environmental management system that controls risks to the environment. ISO 45001 requires an occupational health and safety management system that manages risks to the health and safety of employees.

How to implement ORM according to ISO standards?

  1. Identification: Identify specific operational risks that may affect your business. Consider both internal risks (such as system failure or human error) and external risks (such as regulatory changes or natural disasters).
  2. Assessment: Evaluate the potential impact and likelihood of each risk. Assign a risk score based on this assessment. Also use severity matrix to make the assessment more objective.
  3. Control: Develop and implement measures to control or reduce each risk. This can involve changing business processes, implementing new technologies, or providing additional training to staff.
  4. Audit: Review and update the risk assessment regularly. This ensures that your ORM system remains relevant and effective as your business and external environment evolve.

Common mistakes in ORM

Although many companies understand the importance of ORM, a few common mistakes can undermine its effectiveness:

  1. Lack of specific risks: Risks should be specific to your company's operations, services and market environment. Generic risks that can apply to any company are less useful.
  2. Poor risk assessment: Risks must be assessed based on their potential impact and likelihood. Without quantifiable metrics or criteria to assess these risks, it is challenging to prioritize them effectively.
  3. Ineffective risk ownership: Assigning responsibility to manage risk is crucial. However, the assigned individuals or teams must have the necessary knowledge, resources and authority.
  4. Inadequate risk reduction: While identification of risks is important, the true value of ORM lies in mitigating these risks. Risk mitigation measures should be realistic, feasible and effective.
  5. Inadequate monitoring and auditing: Risks change over time. Regular review and updating of your risk assessment ensures that your ORM system remains relevant and effective.

Summary

In summary, operational risk management is a fundamental function of any business that helps ensure the sustainability and success of the company.

By following the guidelines provided by ISO 9001, ISO 14001 and ISO 45001, companies can implement an effective ORM system that minimizes potential threats and maximizes opportunities for growth and improvement.

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