// Workers AI · dad joke modeIs operational risk management a party? It's a risk you have to manage.

See also: Risk management

Operational risk management (ORM) is defined as a continual recurring process that includes risk assessment, risk decision making, and the implementation of risk controls, resulting in the acceptance, mitigation, or avoidance of risk.

ORM is the oversight of operational risk, including the risk of loss resulting from inadequate or failed internal processes and systems, human factors, or external events. Unlike other types of risk (such as market risk or credit risk), operational risk had historically rarely been considered strategically significant by senior management.

Four principles

The U.S. Department of Defense summarizes the principles of ORM as follows:

• Accept risk when benefits outweigh the cost.
• Accept no unnecessary risk.
• Anticipate and manage risk by planning.
• Make risk decisions at the right time and at the right level.

Three levels

• In Depth: In-depth risk management is used before a project is implemented, when there is sufficient time to plan and prepare. Examples include training, drafting instructions and requirements, and acquiring personal protective equipment.
• Deliberate: Deliberate risk management is used at routine periods throughout the implementation of a project or process. Examples include quality assurance, on-the-job training, safety briefs, performance reviews, and safety checks.
• Time Critical: Time-critical risk management is used during operational exercises or the execution of tasks. It is defined as the effective use of available resources by individuals and teams to accomplish tasks safely when time and resources are limited. Tools used include execution checklists and change management, requiring a high degree of situational awareness.

Process

The International Organization for Standardization defines the risk management process in a four-step model:

1. Establish context
2. Risk assessment
   • Risk identification
   • Risk analysis
   • Risk evaluation
3. Risk treatment
4. Monitor and review

This process is cyclical, as changes to operating conditions require re-evaluation from step one.

Deliberate

Link between deliberate and time-critical ORM process

The U.S. Department of Defense summarizes the deliberate level of the ORM process in a five-step model:

1. Identify hazards
2. Assess hazards
3. Make risk decisions
4. Implement controls
5. Supervise and monitor for changes

Time critical

The U.S. Navy summarizes the time-critical risk management process in a four-step model:

1. Assess the situation:
   • Task loading refers to the negative effect of increased workload on task performance.
   • Additive factors refer to maintaining situational awareness regarding the cumulative effect of variables.
   • Human factors refer to physical and mental limitations in adapting to the work environment (e.g., fatigue, stress, or attention lapses).
2. Balance your resources:
   • Balancing available resources and options by evaluating informational, labor, and equipment assets.
   • Balancing resources against hazards to estimate readiness.
   • Balancing individual versus team effort by observing communication, role clarity, and participation levels.
3. Communicate risks and intentions:
   • Communicating hazards clearly to relevant personnel.
   • Selecting an effective communication style appropriate for the operational context.
4. Do and debrief:
   • Mission completion evaluation and review.
   • Managing change and risk during task execution.
   • Capturing lessons learned to improve future performance.

Benefits

Implementing an operational risk management framework provides several key organizational functions, including:

• Enhanced strategic decision-making
• Improved regulatory compliance
• Increased operational efficiency
• Mitigation of financial loss and reputational risk

The integration of ORM processes helps organizations develop managerial techniques and structural capital applied across business units to address operational disruptions.

Chief Operational Risk Officer

The role of the Chief Operational Risk Officer (CORO) involves establishing and overseeing the operational risk management function within an organization. Financial institutions, particularly those subject to regulatory frameworks such as Basel II (Advanced Measurement Approach), frequently maintain a dedicated CORO role to ensure compliance and risk governance.

Software

Regulatory developments such as the Sarbanes–Oxley Act led to the adoption of enterprise governance, risk, and compliance (GRC) software systems designed to streamline risk management and audit procedures. Software implementations include both commercial GRC suites and open source projects such as Active Agenda.

See also

• Basel II
• Benefit risk
• Cost risk
• Data governance
• Fuel price risk management
• Futures techniques
• Key risk indicator (KRI)
• Operational risk
• Optimism bias
• Risk
• Risk management
• Risk management tools
• Solvency II
• Tactical Risk Management
• Three lines of defence

References

General

• OPNAVINST 3500.39C OPERATIONAL RISK MANAGEMENT (ORM)
• MARINE CORPS ORDER 3500.27B OPERATIONAL RISK MANAGEMENT (ORM)

External links

• The Institute of Operational Risk
• Operational Risk Institute
• Operational Risk Management of U.S. Insurers