Growing Importance of Operational Risk Management

Alongside the growth of Enterprise Risk Management, Operational Risk Management is a disciple which has emerged and raised up the management agenda as a result of operational and regulatory pressure. Basel 2 brought operational risk management to the forefront of the risk management agenda prior to the credit crunch. In the wake of the crisis, there is a renewed emphasis in operational risk management as organisations look to reduce operational losses and establish a 'no surprises' environment.

Operational Risk is all about the risk related to processes, systems and people. Managing these risks has the potential to create significant value for organisations, with operational losses often a costly item for many organisations. Additionally organisations are often forced to allocate capital to these risks by regulation. Therefore reducing the level of risk frees up capital for income generating activities.

Coupled with the implementation of a new risk management framework, significant business benefits are emerging.

· Defining key and emerging risks and map these using a risk map

· Defining processes and systems, and their related risks and controls

· Defining a set of Key Indicators, KPIs, KRIs and KCIs

· Assessing risks and controls related to the processes and systems

· Defining accountability for risks and controls to individuals

· Automating process and systems related risk and controls dashboards and reporting, while enabling advanced analytics

· Encouraging a collaborative approach to delivering performance via commentary, alerts and other web 2.0 collaboration capabilities 

The Evolution of Enterprise Risk Management

In the wake of the credit crunch, Enterprise Risk Management has quickly found its way to the very top of many management teams agendas. Regulators, both within the financial services industry and outside this industry, are also taking an increasing interest in Enterprise Risk Management in the firms they are regulating.

The disciple of Enterprise Risk Management has often evolved through published standards, starting with the COSO frameworks in the early 1990s through to more recent standards such as BS31100, ISO31000 and ISO31010.

In the post credit crunch environment, many organisations are recognising the role risk plays in the creation of value, and if left unchecked, value destruction. In our current environment, Enterprise Risk Management must be placed at the heart of an organisation's strategic execution process.

Reinforcing a culture of accountability and meeting regulatory requirements

Two major challenges facing the risk management team, and the wider management team is 1) developing the right culture around risk management and 2) meeting regulatory requirements, specifically been able to demonstrate that the risk management framework has been embedded into the organisation.

Working with clients recently, StratexSystems has enhanced StratexPoint to include an ‘Acknowledgement’ capability which prompts the ‘Accountable’ persons to ‘Acknowledge’ their most recent data, which could be indicator data, risk assessment data, control self assessment data etc.

Accountable’s Dashboard

Acknowledge Overview Dashboard

These capabilities are having a significant, and positive impact within our client’s organisations. Would welcome feedback and comments.