The term operational risk is defined by many as a continuous cyclic process that involves analysis, selection, and control of risk, resulting in avoidance, acceptance, or mitigation of risk. There are three key elements that are important to consider when developing an operational risk management plan. The first component is the risk definition, which outlines the type of risk that will be assessed, as well as the frequency with which risk assessments will be performed. The second element is the risk identification or prioritization, which identifies the key activities for controlling the identified risk, and the third component is the measurement and reporting of those activities. In addition to this, to learn more info about operational risk management, visit: drivingoe.com.
When determining the importance of each of these components, it is important to consider whether there is a correlation between the two components. An example of this would be that if all risks are equally important, then a single measure or parameter would be used to measure both components. This would result in a poor correlation between the two, as any changes in one component will be felt across the other.
If both elements are linked, then the level of protection that is provided will depend on the level of the risk associated with the system. For example, if a business is a small business, they will not want to provide high levels of protection, because they do not want to risk compromising the value of their business. This means that a business will need to be more strategic about the type of risk that is being assessed, and the frequency at which it will be performed. Small business organizations often provide much higher levels of protection than other types of organizations. Another example is that while an airline may have a system in place to reduce the risk of a plane crash, they may still be in a position to provide protection to passengers. In this case, a risk level would be determined, and any potential risks would be identified and investigated. To understand more info related to this topic, view: https://drivingoe.com/solutions/operational-risk-management/.
As mentioned above, there is usually a correlation between the type of risk and its measurement. If a risk is a financial risk, then the appropriate risk identification or prioritization will most likely focus on the financial aspect of the problem. When performing the measurement of risk, it is important to ensure that the assessment covers the financial aspect, not just the other areas. This ensures that the assessment of the financial aspect of the risk does not become skewed. For example, if a business were to take the risk of an accident, and then later find out that it was due to a faulty brake fluid, but if the risk is only concerned with the financial aspect, then it is unlikely to be deemed as a significant risk to the business.
Another important aspect of assessing risk is the assessment of how the risk impacts the ability of the organization to achieve its goals. This is where a strong relationship with the organization's risk manager can be created. In most cases, organizations will find that the manager's input helps greatly in determining the type of risks that should be considered for the organization, the cost effectiveness of the identified risk, and the type of protection that will be needed to mitigate the risk.
There is also a correlation between risk and the types of employees who are employed by the organization. If employees in management are responsible for managing risk, then it is important to make sure that employees who are performing the evaluation or decision-making process do not perform the same activities. To get more enlightened on the topic, check out this related post: https://en.wikipedia.org/wiki/Risk_management.