Operational Risk Management has come to assume great significance to organizations. Any organization would be required to have both people and processes. Processes concerning these are prone to some kinds of discrepancy, which could result in losses for the organization. Operational Risk Management may be defined as the method by which these losses can be plugged.
There are several risks that organizations face, such as business, logistical, strategic, as well as compliance and legal. Operational Risk Management seeks to be a robust program that can address issues arising from these aspects.
How does Operational Risk Management differ from Enterprise Risk Management?
It is generally understood that the core differentiator between Operational Risk Management and Enterprise Risk Management is that the former looks after the risk the organization faces, from a legal viewpoint. People in charge of Operational Risk Management concern themselves more with important elements such as HR policy, due diligence and other related aspects that require legal attention or action.
From this description, it is quite clear that Operational Risk Management covers every possible risk the organization is exposed to, expect the reputational and strategic. This makes Operational Risk Management some sort of subset of Enterprise Risk Management. The Basel Committee gives high importance to Operational Risk Management, equating it with credit and market risks in terms of gravity and magnitude to the organization’s working.
Operational Risk Measurement
There is another element that is closely related to Operational Risk Management, and that is Operational Risk Measurement. To summarize the quintessential difference between the two; while Operational Risk Management is concerned with the qualitative assessment of operational risk; the latter is about the quantitative aspect of operational risk.