What is Operational Risk Management – Definition and Core Concepts

Operational Risk Management is a methodology for organizations looking to put into place real oversight and strategy when it comes to managing risks. Every business faces circumstances or fundamental changes in their situation that can be seen as presenting varying levels of risk to that business, from minor inconveniences to potentially putting its very existence in jeopardy.

The Basel Committee on Banking Supervision has described operational risk as: “the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. As such, operational risk captures business continuity plans, environmental risk, crisis management, process systems, and operations risk, people related risks and health and safety, and information technology risks.”

All of these risks need to be managed and the more sophisticated the approach to risk management, the more chance the business has to thrive and grow.

What is Tallyfy?

Tallyfy helps you document and automate tasks between co-workers and clients

Click here to learn about Tallyfy

The Benefits Of Operational Risk Management

Before you decide whether or not you want to investigate how Operational Risk Management works and what you need to do to implement it, you will want to know what the potential benefits of it are.

These will help to convince those with sign-off on the decision that it is the right move for your organization, so here are the main benefits of Operational Risk Management:

There are plenty more benefits as well as a few challenges, as with any major business process, but Operational Risk Management is an essential step for every company that is looking to avoid potentially damaging issues.

How Does Operational Risk Management Work?

The first stage of any Operational Risk Management strategy is of course to understand the nature of your business and the particular risks associated with it. If you manage a company that runs water ski lessons, there will be risks your business will face that are very different to a company that creates technology for vending machines. Spending time worrying about risks that are nothing to do with you is just wasting time.

There are three levels of Operational Risk Management that you can choose to embark upon, and these are as follows:

Stages Of Operational Risk Management

Those were the stages the Navy uses for time-critical Operational Risk Management, but for a more standard risk management process these are the usual stages you will need to undertake:

There are other processes and models out there, particularly in the banking world, but most follow similar approaches to the one listed above.  As long as you are picking an approach that suits your specific needs and situation, you will be on the way to a successful Operational Risk Management strategy.


The US Department of Defence has drilled down Operational Risk Management into four key principles, which are as follows:

Taking those principles together with the approaches demonstrated above should ensure that Operational Risk Management is embedded within your organization and you can start reaping the benefits.

Auto-document and track recurring workflows between people
3 track simplified final

Auto-document and track workflows with other people in real-time