Building an Operational Risk Management Framework

Operational risks are inevitable, but they don’t have to disrupt your business. An operational risk management framework (ORMF) empowers organizations to take a proactive approach to incident response to reduce potential threats and enhance their ability to respond quickly and effectively.

What is an operational risk management framework?

An operational risk management framework is a system that helps organizations identify, assess, analyze, and mitigate or reduce operational risks that can affect their business. An operational risk framework can help organizations prepare for and better resolve the most common operational risks, including system failures, regulatory compliance issues, human error, data breaches, and more. 

Why a business needs an operational risk management framework

Operational risks can be debilitating for a company. They can cause system downtime and outages, financial losses, reputation damage, and decreased customer satisfaction. A risk framework can help to resolve incidents faster or minimize their negative effects.

Proactive incident response

An ORMF helps businesses identify potential risks while enabling them to proactively address threats before they escalate. By implementing systems and procedures, organizations can prevent incidents from occurring, prevent customer frustration due to service disruptions, and save companies from costly damages. When issues do arise, an ORMF ensures an efficient response, helping to minimize impact, reduce downtime, and strengthen operational resilience.

Risk prioritization

Knowing the most prevalent risks is important, but an organization must also prioritize them effectively based on how likely they are to occur and their potential impact. An ORMF ensures organizations focus on addressing the most significant risks first.

An ORM framework helps companies identify and prioritize risks, safeguarding the business against potential threats. This proactive risk control approach helps companies respond to and resolve incidents faster to minimize financial and operational losses and prevent customer churn.

How to build an operational risk management framework

An ORMF empowers businesses to minimize risks and resolve issues quickly, reducing their impact on operations and customer experience. 

An effective operational risk management framework should include the following components:

Risk identification

A good framework begins by identifying potential risks an organization may face, from human errors and technology failures to natural disasters. Teams can identify risks by analyzing industry trends and historical data and gathering employee insights.

Assessment

Identifying potential risks is just the first step. Next, a company should perform a risk assessment to prioritize threats based on the potential impact or how likely they are to occur. Risk assessment ensures resources are allocated efficiently to address the most significant threats first.

Mitigation strategy

Mitigation strategies help organizations reduce the likelihood of potential threats or minimize their impact. Risk mitigation includes implementing system improvements or new internal processes, using automation to monitor systems and detect threats, updating policies, and offering employee training.

Roles and responsibilities

Team members need to know how to respond when a threat occurs. Organizations should define clear roles and responsibilities to empower teams to respond quickly and effectively. From identifying risks to implementing mitigation strategies, every team member should understand their action steps

Reporting

Risk reporting and continuous monitoring help organizations protect their business from future threats. Reporting helps to track incidents, evaluate mitigation strategies, and update the framework and protocols as needed. Effective reports should include key metrics such as incident frequency, response times, financial impact, and root cause analysis. Additionally, tracking risk trends over time, compliance status, and the effectiveness of controls gives teams valuable insights for continuous improvement. 

Sample operational risk management framework

Below is a sample ORMF for a SaaS company to minimize operational risks that could disrupt business operations, compromise customer data, or impact customer satisfaction.

Risk identification

The organization identifies potential risks, which may include:

  • Human error: Accidental data deletions or data entry errors.
  • Technology failures: Server downtime or software bugs.
  • Cybersecurity threats: Data breaches, ransomware, or phishing.
  • Natural disasters: Floods or fires that can affect physical office locations.

Risk assessment

Potential risks are evaluated based on the following criteria.

  • Likelihood: What are the chances of the risk occurring? For example, depending on the company’s location, server downtime may be more likely than a flood.
  • Impact: The severity of the risk. For example, a data breach can affect customers and lead to financial loss or customer churn.

Risk mitigation is prioritized based on this assessment:

  • High likelihood + high impact risks (e.g., cybersecurity threats) are addressed first.
  • Low likelihood + low impact risks (e.g., minor natural disasters) are monitored.

Mitigation 

Organizations should create mitigation strategies for high-priority risks, for example:

Human error

  • Implement automation tools to prevent manual errors. 
  • Schedule employee training to prevent future incidents.

Technology failure

  • Use cloud-based infrastructure with built-in redundancies to minimize downtime.
  • Schedule regular system maintenance and software updates to prevent bugs.

Cybersecurity

  • Implement multi-factor authentication (MFA).
  • Use monitoring tools to detect threats and notify appropriate team members.

Roles and Responsibilities

Prepare teams and employees to handle threats effectively.

  • IT team: Responsible for maintaining systems and resolving technical issues.
  • Security team: Manages cybersecurity risks, including threat detection and incident response.
  • Employees: Train team members to follow best practices and report potential risks or incidents.

Reporting 

Ongoing reporting and monitoring help organizations understand the effectiveness of their risk management strategies and promote continuous improvement to optimize incident response and increase operational resilience.  

  • Develop dashboards and dynamic reports to track incidents and their resolutions.
  • Update stakeholders on identified risks and mitigation efforts.
  • Use automated monitoring tools to track system performance and detect anomalies.
  • Review the ORMF regularly to ensure alignment with evolving risks and business objectives.

By proactively identifying risks, prioritizing threats, and implementing effective mitigation strategies, organizations can protect their operations, reputation, and bottom line. A well-structured ORMF ensures your team is prepared to handle challenges and promotes a culture of resilience, enabling long-term business success.

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