You have systems and frameworks for managing your accounting, employees, and even the company fantasy football draft. So it only makes sense to establish a framework for managing operational risk as well. With a systematic approach to mitigating and addressing operational risk, you can improve uptime, reduce costs, and focus your energy on growth instead of putting out operational fires.
What Is an Operational Risk Management Framework?
An operational risk management framework refers to a system for identifying and managing risks that could impact the daily operations of your company. Companies use it as an operational risk management system to assess the risks that could endanger their operations as well as how much it would cost to offset or mitigate these risks.
What Are the Core Components of an Operational Risk Management Framework?
Your operational risk management system serves as a roadmap and action plan for dealing with and minimizing risk. As such, it typically includes systems for:
- Identifying and classifying risks. For instance, you may pinpoint unique risks and then categorize them according to mild, moderate, or severe.
- Quantifying risks. You can use financial classification systems that gauge the monetary impact of risk events or that measure how much operational downtime a risk incident could result in.
- Monitoring and reporting. Using a risk management solution, you can monitor risks as they arise and report to all relevant stakeholders.
- Mitigating risks. Risk mitigation is essential in a framework meant to support operations because the stronger your mitigation measures, the less of an impact each potential incident will have on your organization’s profitability.
- Incident response. When it comes to operations, responding to incidents in a quick and efficacious manner can make the difference between the cost of an incident having one or two commas.
- Documentation. By documenting your risk data and prevention and mitigation measures, you give your team artifacts they can refer to and improve as lessons are learned.
- Continual improvement. You should embed a system for continually improving the effectiveness of your framework by making adjustments in response to new needs, lessons, or circumstances.
How to Establish an Operational Risk Management Framework
Getting operational risk management systems off the ground starts with establishing the digital infrastructure for identifying and managing risk, and then setting up frameworks according to different categories of risk.
Identify a Comprehensive Risk Management Solution
Your risk management software serves as the foundation of your operation risk management framework because it comes with tools that automate elements of your processes and keep all stakeholders on the same page. Ideally, you want a technology that can facilitate:
- Incident management. An incident management system enables stakeholders to submit incident data as they receive it. It’s then collected in a central system, which enables visibility for everyone granted access.
- Asset management. Your tool should outline all assets and the financial ramifications of them being impacted by a risk event.
- Claims management. With a claims management tool, you can reduce the cost of processing and compensating for claims, bringing down the cost of your operational risk mitigation.
- Cost management. Your operational risk management solution should make it easy to decide how much risk to retain, and how much to transfer to an insurer.
- Insurance policy and program management. With the right risk management solution, you can see which kinds of risks you have coverage for, how much, and ways you may be able to bolster or throttle back your coverage.
Establish Protocols for Managing Different Categories of Risk
At a high level, each risk will have to be identified, assessed, mitigated, monitored, and reported. You can use your risk management software to check off each of these boxes. But the “how” and “what” of your system will depend on the type of risk.
Here’s an example using cybersecurity risk to illustrate how to build a framework.
- Identify. You should figure out which risks you’re susceptible to, such as insider data theft, external breaches, unauthorized access to your company’s VPN, apps, or workstations, or the failure of a firewall or other security component. You could also include more specific attacks, such as distributed denial of service (DDoS) assaults on your web app, phishing, or ransomware.
- Assess. During the assessment stage, you figure out how likely it is for each risk to impact your operations, as well as the impact it could have, financial or otherwise. For instance, a DDoS attack may be less likely than a phishing attack, but if it’s sustained long enough, it can be just as damaging.
- Mitigate. Your risk mitigation includes controls and systems used to reduce the chances of a risk interrupting operations. In a cyber risk scenario, you could use next-generation firewalls to prevent intruders, malware, and access to dangerous sites, and check for data exfiltration attacks. Mitigation also frequently involves employee education and periodic training sessions.
- Monitor and report. Risk monitoring happens through a system that collects and stores risk data. For cyber risk, a network monitoring tool can examine network traffic for signs of malicious activity, for instance. Although you can also enable automatic incident reports, a level of manual, human intervention may be necessary to make sure the info gets to those it impacts the most.
Ventiv’s operational risk management tools, bring all of your operational risk assessment under a single umbrella. It gives you a risk data analysis system as well as incident management and mitigation tools. This makes reducing the cost of operational risk easier while minimizing the financial and human impacts of your company’s risk incidents.
Chat with an expert to see how Ventiv’s operational management system is right for your organization.
