Operational Risk Management

Assure you can reach your goals!
In many of the organizations I visit, starting a conversation with people on Operational Risk Management (ORM) will lead to only a short discussion on this topic. Entrepreneurs look at opportunities rather than potential flaws. Directors accept the need for ORM from a compliance perspective, but prefer discussions on revenue, profit and strategy. Department managers focus on issues at hand over problems that might occur in the future. And lastly, the workers do not like "policemen" watching over their shoulders to prevent risky behavior, since they perform their tasks for years now and they know what they are doing. In short: nobody likes to look at the negatives that could possibly impact the company.

Obviously, this image is not entirely true. However, ORM is still a topic which is not top of mind for many people. Or is it? Without realizing it, everyone participates in risk management on a daily basis. Think about waiting for the red light to turn green before crossing the street, for example. Or storing your milk in the refrigerator, rather than keeping it in a corner on the countertop where it may spoil much quicker.

If we are so participative in risk management in our personal lives, why then is it that many people's first response to Operational Risk Management regarding their business is "we don't need risk management, there were no major hick ups in the past so we should be fine in the future as well?

I think the answer lies in the fact that one cannot make a viable business case for good risk management. A company needs to invest in order for it to implement proper risk management; however, if done so correctly, one will never be able to quantify the potential losses that have been avoided by the controls that were introduced. Hence, the actual financial benefits of introducing ORM in a company cannot be set off against the required monetary investments up front.

Therefore, I like to look at risk management from a different perspective: ORM supports you in realizing your goals with much more certainty. Applying ORM helps your company to become more in control with respect to the outcomes of your operational processes. It reduces variation in the realized output, it decreases the chance of having to fix mistakes, and it allows for early corrective actions to be taken if lacking behind in achieving the operational targets. Operational Risk Management thus allows you to sleep at night, rather than lying awake wondering if you will be able to achieve the organizational goals that were set.

Stefan van Duren MSc
Managing Consultant - Hofmeier 

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