Even successful businesses face risk. There are always challenges when trying to build something new or change a process to be more efficient. Some things are unpredictable, but you can control others with effective risk management strategies. Ensuring you manage potential threats guarantees you a good night’s rest and smooth operations. 

Risk management ensures the business doesn’t suffer losses that will affect the bottom line. A few cost-effective strategies for managing challenges can make all the difference to your company’s risk profile and ultimate financial security. 

What Is Operational Risk Management (ORM)?

ORM is an evaluation process that weighs the risk of loss due to ineffective internal processes against future business disruptions and the resulting financial implications. It’s a strategic model that allows companies to decide whether changing something or creating a new product or service outweighs the potential gains. 

Suppose the risk is greater than the gains. In that case, ORM allows you to make an informed decision to protect the business by mitigating the danger or steering it toward alternative action. 

Risk occurs when dangers go unnoticed. Without control processes, the issue may only become visible when it’s already too late to prevent it. 

Risk Types to Note

In your business, it’s essential to identify the types of risk to watch out for and how to manage these. They are at the heart of cost-effective ORM. Here are the main kinds your company could face:

• Poor employee conduct or error: Your staff’s lack of training or motivation negatively affects other business operations. Risk arises when employees cause severe challenges to the company’s fiscal stability. Increase your workers’ knowledge base with online certifications like C+ and C++ to complement their work needs.
• Failure of technology: Outdated equipment and weak repair and maintenance management can result in a complete stop of operations. Malfunctioning equipment can leave your operation without electricity and lead to unexpected costs.
• Ineffective processes and controls: Business management and processes contribute to effective operations, and when these fail, your business suffers. 
• The threat of new technology or products: When a business upgrades but the latest technology or products don’t perform as expected, it causes decreased productivity or other risk factors. 
• Fraud and poor leadership: Theft, fraud and mismanagement are some of the most significant threats to operations, requiring the risk manager’s constant attention. 
• Safety and natural disasters: Your office burns down, or an employee suffers electrocution at work — these are all unpreventable risks. 

Strategic Operational Risk Management Steps

The risk management process comprises steps that enable you to predict and manage issues before they affect your business. Effective and diligent implementation of these steps ensures your ORM’s cost-efficiency. 

Follow these ORM steps:

Identification of Risks

The first step is the most important and ensures your business remains risk-aversive. Start by fully mapping your goals and objectives, and then consider all processes and identify any that contradict them. Redundant operations, lost data, past and future incidents, employee effectiveness and hypothetical scenarios can all contribute to risks. 

Look for any equipment that is outdated or working improperly and address it before it becomes a problem. Plan to have backup systems in place should something go wrong unexpectedly. Any backup system should have a reserve capacity of at least 25% more than your previous year’s highest energy demand.

Interview employees, create regular check-ins, host meetings and lead workshops to gather as many perspectives on the business as possible. Employees may have noticed something management has missed, and their unique perspective gives them a different take on a potential risk. 

Part of this step is implementing more training and skills workshops for employees to ensure they can manage potential risks rather than add to them.

Risk Measurement and Evaluation

Not all risks can be eliminated or avoided. Risk management implies the ORM manager considers potential issues and decides whether they outweigh any benefits they can bring. If so, a change in course can help avoid the danger or mitigate its business impact. 

The information, perspective and staff training contribute to effective risk measurement and evaluation. Only accept risks that:

• Have a greater benefit
• Offer a necessary value
• You can plan for and manage
• The appropriate level of management approves

Risk Monitoring

The business reporting function creates feedback and is an effective tool for risk monitoring. You can use automation with AI technology-powered apps that help collect information and track the changes to risk profiles to remain current on the latest information, constantly reevaluate and shift direction as needed. 

Rely on effective forms of monitoring and reporting like:

• A SWOT analysis: The strengths, weaknesses, opportunities and threats in chart form.
• A risk register: A repository of risks and solutions or approaches to help risk managers coordinate.
• A probability and impact matrix: This predictive model for future risks enables forecasting. 
• The Delphi technique: Risk managers can collect information via reports and surveys.
• A detailed project management and information system (PMIS): Effective project management software or a PMIS tool enables data collation and effective risk aversion. 

Regular Reporting

You may prefer to keep risks at the back of your mind, but regular reporting is vital to business success. Keeping your company risk-aversive and nimble is how you ensure catastrophic issues are mitigated or averted. 

Minimize Risks to Maximize Success

Risk management strategies are cost-effective when they reduce dangers, increase a business’s resilience and enable future prediction. Encourage the business reporting function and monitor risk mitigation with care to ensure you sleep well at night.