Risks are inherent principles of business functions and processes. While we have control over some risks, others are just not in our hands.
Operational risk is a risk classification on which we have power to a large extent. Assessing and evaluating operational risks is vital. Organizations should develop foolproof assessment programs, as understanding and mitigating operational risks are equivalent to saving yourself from internal risks and self-destruction.
There are quite a few methods to perform risk assessments. Here are a few techniques used predominantly:
Do it yourself! Self-assessment methodology
You need to exercise certain mechanisms to be able to make self-assessments.
Firstly, administer a central risk management profile and internal control system that includes every unit and function of your organization.
Secondly, have regular report generation and review procedures centering the four blocks of operational risks management – people, process, technology and external events.
Evaluate the reports, compare them to recognize inconsistencies, look for variations and irregularities. Those actions clearly encompass prevailing risks or warning signals that can be then weighed to take even measures.
Have someone else look into it! Third-party assessment methodology
A third-party review, which uses a central understanding of critical objectives and processes, together with an independent validation of assessments, is highly recommended.
It is very critical to conduct third-party assessments to objectively perceive the risks.
As with everything we do, people involved usually tend to miss acknowledging certain factors, or they are simply biased. Those misjudged or omitted aspects can turn out be the key points. Especially with risks shooting in from every angle, we cannot take chances bypassing any inference.
Get the expert opinion! Facilitated assessment methodology
Assessments done by outside professional give you a different perspective altogether.
The executives can be business managers, specialists and analysts who understand your business domain and are familiar with certain risks. Outsourcing to proficient risk managers or agencies who work well with your niche services and products can act as a major advantage for risk assessment.
While the former method is self-learning,third-party assessments and facilitated assessments educate you and your employees to look at risks from a holistic standpoint. Ideally, you should infuse all the three methodologies to yield maximum benefits for your organization.
Earlier, executives approached operational risks with no support of documented guiding principles. The drawbacks in the system led to failing management decisions, policies and strategies. Today, with growing exposure to risks, we realize the role of a risk assessment framework. It is much easier for the management to take the right approach, making adequate decisions and above all, communicating all of it to the employees with suitable data backing it up.
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