OPERATIONAL RISK

OPERATIONAL RISK DEFINED

Operational risks are defined in many different ways. Refer to the COSO ERM Frameworks and ISO Risk Management Frameworks for two common views of risks related to operations.

 

At RISK TRANSPARENCY, operational risk refers both to the operations of an entity enterprise-wide (ERM) and the ability of an individual functional area component of an entity to achieve it's objectives.

 

For example, the operations (and corresponding operational risks) of a manufacturing company can refer to the people, processes, assets, and other required resources to move from a product idea to a product manufactured and distributed to a customer.

Within each entity, each functional area also has numerous operational risk elements that drive the effectiveness, efficiency, and ultimate success of the function. Click on the following functional areas Research, Development and Innovation, Marketing, Manufacturing and Production, Legal and Corporate Governance for examples of key risk sub-categories that support near and long-term functional area success.

OPERATIONAL RISK TRANSPARENCY

The ability for an entity to more transparently view operational risks accross the enterprise and within individual functional areas provides a number of benefits. These include:

Enterprise-Wide Benefits

  1. Consistent understanding of events that can provide opportunities or risks to the entity mission and strategies.​

  2. Common nomenclature and basis for key decision support, capital allocation, and performance measurement.

  3. Common views of organizational targeted and current risk appetite and risk tolerance levels.

Functional Area Level Benefits

  1. Consistent understanding of functional area performance.

  2. Common way to communicate, collaborate, and build best practices internally and externally.

  3. Common views of entity-wide vs. business unity or agency functional area level targeted and current risk appetite and risk tolerance levels.

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