Most organizations, if not all, have some level of operational risk management. Some organizations are focused on operational risk related to safety or contract oversight of vendors for example.
But a common view of operational risk management is slightly broader by examining risks associated with the actual daily operations of the organization. Examples include understanding the processes within each department, the vulnerabilities of those processes, the customer interactions, and technology usage.
On the other side of the spectrum, more and more companies are starting to think about strategic risk management according to a survey from NC State University. Risk managers coordinate with the strategy and planning departments to identify risks associated with the strategic plan and its execution.
So can how can the two functions come together and be valuable to each other?
Taking Operational Risk Management to the Next Level
Regardless of your organization’s version of operational risk management, there are opportunities to mature those processes. Consolidating information currently being collected to get a true enterprise-wide view of risks is the most likely maturity step.
That being said, consolidating the data means it was collected or documented using the same standards and criteria. Otherwise, the risk assessment information isn’t comparable. If this is the case for your organization, start working with the various departments to update the risk assessment using the same rating criteria.
Now that you have the organizational risk information together, you should use the organization’s Risk Tolerance to determine what risks are within the tolerance threshold. Set those aside and focus on those risks exceeding the Risk Tolerance. Conduct some analysis by asking these questions:
- How many risks exceed the Risk Tolerance?
- Are those risks concentrated in a specific business unit or type of risk (like financial or technology)?
- Is the list of ongoing mitigation activities and assessment current?
Risks that exceed the Risk Tolerance and can be reduced further will require resources (money, people, and/or time), sometimes at a level that a business unit cannot easily absorb losses without impacting other activities. Working with the responsible business units to prioritize those identified risks for action brings clarity to the exercise.
Just remember to keep it simple….
Once you have completed this analysis and prioritization, you now have an input into your organization’s annual plan…seriously.
Applying strategic risk management insights into the operations
Your organization has strategic risk management. That’s great! Because that means you have overcome the challenges I talk about in my 3-part video series on Linking ERM to Strategy.
But are you wondering how those insights into the strategic plan can be shared across your organization and used as part of operational risk management?
Business units can create their individual business plans for how their unit will execute the strategic plan. Incorporate the insights from the strategic risk management activities by ensuring that the identified risks are being addressed as part of the business plans, and verifying that the business plans will not make the risks worse.
The second way that strategic risk management delves into operational risk management is that business units will likely have activities to reduce some of the identified strategic risks. Those activities will hopefully become a part of their regular operations and processes.
Are you ready for the challenge?
Taking these steps will really take your risk management activities – both operational and strategic – to the next level, as you connect the two processes and demonstrate to your leadership how valuable the information really is. As you connect these processes and provide the true organizational wide view into risks and what is being done about them, you are creating an enterprise risk management process.
Are you ready to take your organization’s risk management to the next level? What is your game plan?
Please comment below or join the conversation on LinkedIn.