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What is Operational Risk Management?

Article Details
  • Written By: J. Airman
  • Edited By: Melissa Wiley
  • Last Modified Date: 06 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Operational risk management involves virtually always performing a set of tasks designed to reduce losses from unexpected problems during the process of operation. Usually, operational risk management involves assessing situations, making plans, and training personnel so they are ready in case of an unexpected problem. With proper training and planning, operational risk management can reduce the cost and prevalence of risk-related occurrences. This type of risk management is most often seen in military applications. It is commonly performed using risk management software programs like those made by OpenPages™ and MetricStream™.

The first step in operational risk management involves identifying risks. Potential risks are then assessed to gauge potential impact and cost. If a risk is determined to be enough of a threat, steps are taken to address the risk and remedy or reduce the impact of the risk. This process occurs constantly in operational risk management and is designed to be a constant sentry that guards against consistent risks and identifies new risks that may appear on the horizon.

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Examples of risks in operations include equipment failures, environmental emergencies, and human error. Operational risk management can reduce risk from equipment failures by ensuring that machinery receives proper maintenance and is in good repair. This can apply to manufacturing machines or heavy duty construction machinery, but can also be as simple as ensuring that a company vehicle has safe brakes and tires. Environmental emergencies include poor weather that causes delays in production or new laws that limit operations.

When problems with human error strike, operational risk management aims to reduce losses by training employees. Training members of an organization can give them skills and knowledge that helps reduce the occurrence of interruptions due to human error or injury. Injuries can both stop production and present a liability risk for the organization. Diligent training of the members of the organization can help ensure that they follow safe and productive procedures. Types of risk management training can range from ergonomic posture assessments to first-aid training for workforce supervisors.

Staff members can also receive training that tells them how to deal with emergencies when they occur to reduce losses as a result of the emergency. Giving staff an emergency plan, such as a fire exit plan or emergency contact plan, can help reduce employee anxieties about potential risks or interruptions in operation. Training is given to members at all levels of the organization to ensure that all members of the organization are trained for and committed to reducing the identified risk.

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