How can operational risk governance align with strategic objectives?

Operational risk governance is the bedrock of an organization's resilience, encapsulating the strategic orchestration of processes and structures to identify, assess, and mitigate risks arising from internal vulnerabilities, external events, or systemic failures. Rooted in a robust risk culture, it involves continual risk assessment, proactive management strategies, and transparent communication channels.

Operational Risk Management attempts to reduce risks through the linear process of risk identification, risk assessment, measurement and mitigation, monitoring, and reporting while determining who manages operational risk. Operational Risk Management begins with identifying what can go wrong. As a best practice, a control framework should be used or developed to ensure completeness. Identifying risks begins with scenario analysis — taking a look at the challenges facing the business and pinpointing areas that could disrupt operations or pose another risk to the organization.

Through my journey in risk management, I've realized the essence of operational risk governance lies beyond mere procedures and policies. It's about integrating these frameworks seamlessly with the organization's strategy and risk culture. From the boardroom to the operational teams, everyone plays a crucial role. This alignment is key to not just managing risks but also steering the organization towards its strategic ambitions, blending governance with long-term vision

In my experience, aligning operational risk governance with strategy starts with defining guiding principles, not prescriptive policies. This provides a framework for risk decisions that support objectives. For instance, articulating tolerance levels enables acceptable trade-offs. Governance bodies should include cross-functional leaders to evaluate risks holistically. Breaking down silos brings diverse perspectives. With visibility into strategic priorities, teams can identify emerging threats. Governance effectiveness stems from a culture of trust, transparency & accountability. People need to feel comfortable surfacing issues early. With robust principles, organizations gain agility to navigate uncertainty while advancing goals.

Risks needs to be assessed when formulating strategic plans. This entails considering, for instance, long-term projections, annual budgets, digital transformations, and software development plans. Additionally, it involves evaluating the involvement of major third-party entities, partners, clients and the outsourcing of critical operational processes. The techniques and platform to assess risks should be harmonized with other business processes and controls, including due diligence, vulnerability reviews, impact assessments, compliance audits, and control reviews. The ownership of risks, compliance requirements and control vulnerabilities needs to be aligned to the allocation of business objectives and job responsibilities.

In mature organizations, a risk committee, appointed by the board of directors, also handles compliance and audit responsibilities. This specialized group helps in enhancing decisions and aligning treatment actions with a comprehensive strategy. The setting of a risk, compliance, and audit committee facilitates oversight, ensuring a better adaptation to emerging risks and adjustments to changes in business goals and operational capabilities.

The Operational Risk Committee serves as a governance body that helps organisations proactively manage and navigate operational risks. Through its oversight, guidance, and strategic input, the committee contributes to the development of a resilient and adaptive risk management framework. Charged with setting risk appetite, developing policies, and monitoring risk metrics, the committee plays a pivotal role in aligning risk management practices with the organisation's objectives.

One thing I've found helpful is the creation of a collaborative environment within these committees. In my current role, we use a cross-departmental approach, where members from various functions such as IT, HR, and Finance come together. This diversity allows for a more comprehensive understanding of operational risks and fosters innovative solutions. For instance, our IT representatives often provide insights into technological risks that others may overlook.

Drawing on my professional expertise, operational risk committees are essential in linking risk management to strategic goals. They need diverse, independent experts proactively overseeing risks within the firm's risk appetite. The committee composition should evolve with emerging risks, maintaining an action-focused approach with clear authority for risk mitigation. Education on risk awareness throughout the organization is also a priority. Performance should be regularly assessed, and there must be clear protocols for escalating serious risk issues. Effective communication with other risk committees ensures a unified risk management strategy.

5 reasons why risk committees fail: 1. Lack of clear objectives and scope -What are people's roles -What responsibilities do they have -Is discussion/challenge allowed or frowned upon 2. Inadequate composition and expertise -Lack the knowledge to challenge when required -Groupthink due to homogenous structure -Inability to anticipate risks 3. Poor integration into governance structure -Lack of risk oversight coordination -Fragmented approach to risk management 4. Ambiguous Risk Management Framework -Unclear risk definitions -Unclear risk appetites and tolerances and how to measure -Ineffective risk identification 5. Ineffective communication and reporting -Critical risk information not received timely -Lack of awareness about risks

-The Board shapes the direction, providing oversight and guiding operational risk strategy and appetite. -Senior management executes and serves to transmit a strong risk culture throughout the organisation. -Business units implement and identify, assess, and mitigate risks within established frameworks. -The risk function provides challenge, guidance and suggests minimum control standards while setting appropriate policies and frameworks. -Internal Audit is the 3rd line of defence that provides independent assurance.

Dentro de los roles asignados en la gobernanza, debe quedar claramente establecido y en concordancia con las 3 líneas de control interno. Especial cuidado debemos tener en esta asignación la cual produzca una adecuada segregación de funciones, tanto para quienes ejecutan, monitorean o aseguran la calidad de la gobernanza.

In my experience, the ultimate accountability for identification and mitigation is the risk owner. This individual has the budget authority to spend funds on remediation and ongoing sustainability of mitigation actions. Several individuals can have direct responsibility for 1) Oversight 2) Identification, and 3) Collaboration with the risk owner to operationalize risk mitigation.

That's why the company's strategic plan is approved by the board, so the board should oversight the management of operational risks related to strategy. Risk owners of operational risk is senior management and it must be delegated to unit level.

Designate specific roles and responsibilities to individuals or teams for managing different aspects of operational risk. This structure fosters a clear understanding of who is accountable for monitoring and mitigating operational risks, ensuring a more robust and focused risk management approach.

One time at my work, we implemented a new risk assessment tool that significantly improved our risk evaluation process. This tool allowed us to quantify risks in financial terms, making it easier for the board and senior management to understand the potential impact of operational risks on our financial performance.

Parte fundamental para a gest?o de riscos de uma institui??o é a defini??o do apetite a risco. Estes limites, que s?o definidos pelo conselho de administra??o da empresa, devem ser estabelecidos considerando os objeitvos estratégicos da companhia.

In my experience, it's about identifying and quantifying risks, then aligning mitigation strategies with business goals. Effective risk reporting and escalation are critical for informed decision-making. This approach has consistently helped me ensure that operational risks are managed not just for compliance, but as strategic tools for organizational growth and stability.

Operational risk governance aligns with strategic objectives through an innovative operational risk framework, acting as a catalyst for success. This framework integrates advanced risk identification, evaluation, and response mechanisms, fostering a dynamic synergy between risk management and strategic pursuits. By leveraging cutting-edge technologies and adaptive methodologies, organizations proactively address potential disruptions, enabling a more resilient and agile pursuit of strategic goals. The implementation of this innovative operational risk framework ensures that risk governance becomes a strategic enabler, optimizing performance and driving sustainable achievement of organizational objectives.

Implementing an operational risk framework involves five key steps: identifying potential risks, assessing their likelihood and impact, applying mitigation strategies, reporting risk data for informed decision-making, and escalating significant risks to activate contingency measures. This comprehensive approach ensures consistent management of operational risks across the organization.

In my professional journey, I've learned the importance of adapting and evolving our risk governance mechanisms. For example, after a significant operational incident, we conducted a thorough review of our risk indicators and realized they were not capturing emerging risks effectively. We then updated these indicators, which improved our risk monitoring and reduced the likelihood of similar incidents in the future.

Operational risk governance is a continual journey, demanding consistent vigilance and assessment. Organizations must proactively set up mechanisms for monitoring and reviewing their operational risk governance framework. This entails measuring and evaluating its performance and effectiveness. By identifying and addressing any gaps, weaknesses, or areas for improvement, the organization ensures that its risk management practices stay resilient and aligned with evolving challenges and strategic objectives. Regular reviews are key to maintaining a robust operational risk governance system that adapts to the dynamic nature of business environments.

Continuously monitor the effectiveness of the operational risk governance structure. Regular reviews and updates to the risk management framework are essential to ensure it remains relevant and effective in achieving strategic objectives, especially in a changing business environment.

Monitoring and reviewing operational #RiskGovernance is crucial to ensure its effectiveness and alignment with organizational objectives. Key subjects to consider in this process, principally: #KRIs #RiskAppetiteAndTolerance #ScenarioAnalysis&StressTesting #Compliance with Policies and Procedures: #Technology&DataAnalytics: Use technology and data analytics tools to monitor operational risk in real-time. Implement systems that provide early warnings and predictive analytics to identify emerging risks. #Audit and Assurance #PerformanceMetrics #ManagementReporting : Ensure these reports are tailored to the needs of different stakeholders #Training&Awarenes #Adherence2Risk Culture #ContinuousImprovement #RegulatoryCompliance

It goes without saying that a governance framework needs to be reviewed. However, it’s incredible how many organisations have risk frameworks and policies that were last reviewed some years ago. Business change is daily. Think about personnel and talent changes, process changes, customer and supply-chain changes, industry changes, regulatory changes - a business and its workforce operate in never ending internal and external flux. Risk governance therefore must be reviewed very regularly to remain fit for purpose. It’s not simply asking ‘does risk governance exist?’ This approach will at some point fail you in a material way, often when least expected. Good operational risk governance requires regularly asking ‘is this fit for purpose?’

As Chief Risk Officer , I see a glaring misalignment between operational risk governance and strategic objectives in many organizations. It's like driving blindfolded, pursuing ambitious goals while ignoring potential roadblocks. This disconnect can be disastrous, eroding profitability, reputation, and even viability. ?? Professional Tips for Aligning Operational Risk and Strategy: 1. Clearly define strategic objectives and risk appetite. 2. Integrate operational risk assessments into strategic planning. 3. Establish dedicated risk governance structures and roles. 4. Implement a comprehensive risk management framework. 5. Proactively identify and manage emerging risks. 6. Promote a culture of risk awareness and ownership.

Aligning operational risk governance with strategic objectives involves integrating risk management practices into the broader goals and vision of an organization. This alignment can be achieved by: Understanding Strategic Objectives, Goals and Priorities. Mapping Risks to determine how operational risks might impact these strategic objectives. Implementing Tailored Controls. Communication and Integration: Monitoring and Adaptation to align with changes in the organization's strategic direction. When operational risk governance is aligned with strategic objectives, it becomes a proactive tool for preserving and enhancing an organization's ability to achieve its long-term goals while managing potential risks effectively.

Operational risk governance aligns with strategic objectives by embedding an intuitive approach within organizational culture and operations. This involves fostering a risk-aware mindset across all levels, encouraging employees to instinctively consider risk factors in decision-making. Implementing intuitive risk frameworks ensures adaptability and responsiveness to emerging challenges, aligning operational practices with strategic goals. By ingraining risk consciousness into the organizational culture, teams proactively contribute to achieving strategic objectives, fostering a resilient environment where risks are intuitively managed, allowing the organization to navigate uncertainties and capitalize on opportunities with foresight.

For example, a manufacturing company may establish an operational risk committee focusing on supply chain risks. This committee ensures that operational risk management strategies, like diversification of suppliers, align with the strategic objective of maintaining a stable and reliable supply chain. Regular reviews of supply chain risks and mitigation strategies help the company adapt to changing market conditions while supporting its long-term strategic goals.

Identifying emerging risks is crucial for robust operational risk management governance. This method provides key advantages: Anticipate Changes—proactive adjustments based on emerging risks help organizations foresee shifts in the business environment. Mitigate Impact—timely recognition empowers organizations to implement measures, minimizing disruptions before they escalate. Adapt Strategies—the ability to adapt strategies ensures operational plans align dynamically with evolving threats and opportunities. Enhance Resilience—a granular focus on emerging risks fosters a proactive approach, enhancing overall organizational resilience. Improve Decision-Making—informed decision-making relies on a detailed understanding of emerging risks.