Operational Risk Management

Operational risk management is critical to any organization. In this article, learn what it is, how it benefits a business, and how to apply it with a team.

What is Operational Risk Management?

Operational risk management is the process of identifying, assessing, and mitigating risks that could disrupt business operations. This proactive approach to managing a business allows organizations to reduce the likelihood of costly disruptions and keep business operations efficient and effective.

While operational risk management is necessary for any organization, the process is complex. To practice it, teams must understand how an organization operates and the types of risks that they may face. Risks arise from various sources, from internal processes and external events down to human error. On top of identifying all the potential risks to business operations, managers must also assess them and apply measures to mitigate such risks.


There are many reasons to practice operational risk management in an organization. However, one of the primary benefits is that it reduces the likelihood of disruptions and operational losses. Operational losses significantly affect an organization’s bottom line, so reducing them is great for any business.

Additionally, this process allows businesses to identify risks before they actually become a problem. That way, they can apply measures to reduce the likelihood of these risks happening, improving safety and overall efficiency.

Another important benefit of operational risk management is that many organizations need it to comply with local laws and regulations. When organizations identify risks and mitigate them before they actually happen, they can also ensure that they abide by all regulatory requirements for their industry.

Not only does compliance reduce the chances of hefty fines and legal repercussions, but it also improves your business’ reputation. Investors, consumers, employees, and customers are more likely to trust organizations that comply with regulatory requirements, which is another key benefit of operational risk management.

What Industries Practice Operational Risk Management?

Operational risk management isn’t a practice for any particular industry. Instead, this is a great practice for businesses in any industry, whether retail, freight brokerage, or construction. That said, businesses and organizations with complex operations like healthcare and manufacturing facilities greatly benefit from operational risk management, as they greatly reduce the risk of losses, accidents, and costly errors.

On top of that, certain industries that have strict regulatory requirements, like banking and insurance, need operational risk management. The practice allows organizations to ensure compliance with relevant rules and regulations. This helps you avoid fines, and legal repercussions and boosts your business’ reputation.


Operational risk management is a broad term that describes various practices. The main types of organizational risk management that organizations practice include:

This is the process of identifying the risk and determining its likelihood of happening. This gives organizations a comprehensive view of potential risks that could cost them and put their employees and resources in danger.

This is the process of applying certain measures and controls to reduce the likelihood of risks happening. This comes right after risk identification and can be done through training staff, adding new technologies, or implementing new safety measures.

Another type of operational risk management is monitoring all potential risks to your organization’s operations. This involves regular reviews, gathering data on business operations, and reading all incident reports that involve key operational risks.

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How to Implement Operational Risk Management

Implementing operational risk management is a complex task, but it’s necessary for preventing events that can cost your business and put employees in danger. This is why it’s imperative to have a team behind operational risk management to monitor risks. While operational risk management looks different for every organization, here are three key steps in implementing it.

  • Conduct a Risk Identification and Assessment

The first step in operational risk management is identifying the different risks that the business faces. This requires inspections and audits to catch all possible risks. From there, the team must assess these risks and determine which ones are most likely to happen and which can cause the most damage.

  • Develop and Implement a Risk Management Plan

Once the risks are identified and assessed, the team must develop a risk management plan. This involves determining the best way to perform different tasks and practices to reduce risks, introducing new technology to business operations, and even changing certain operational practices. Once the plan has been developed and reviewed, the team can implement it within the organization.

  • Constantly Monitor Risks

When implementing a risk management plan, the work isn’t over. After that, the team must constantly monitor the organization’s operations while also reviewing the effectiveness of the risk management plan. From there, it will be easier to determine what’s working and what could be tweaked to manage operational risks further.

FAQs about Operational Risk Management

There are five general categories of operational risks:

  • process risk;
  • people risk;
  • external events risk;
  • systems risk;
  • legal risk; and
  • compliance risk.

Generally, companies identify operational risks through key risk identifiers or KRIs. This metric measures the combined likelihood of an event happening and the severity of the consequences.

There are many sources of operational risk. These can come from human error, external events, internal processes, and even the industry’s current state. This is why operational risk management is a crucial process for all organizations.

The biggest challenge of implementing operational risk management is accurately determining the probability of a risk happening. This is an area where teams struggle the most, so it’s important for operational risk management teams to use tools to make the process easier.

Leon Altomonte
Article by
Leon Altomonte
Leon Altomonte is a content contributor for SafetyCulture. He got into content writing while taking up a language degree and has written copy for various web pages and blogs. Aside from working as a freelance writer, Leon is also a musician who spends most of his free time playing gigs and at the studio.