Identifying Operational Risks to your Business

Operational Risk Management continues to be an unfamiliar word in many of the countries. They fail to realize the importance of integrating it into their day-to-day business practices. Operational

risk is somewhat different from market or credit risk by being endogenous to the ministry of finance.

Operational Risk Management (ORM) is all about the business environment, the nature and complexity of operational processes, the systems in place, level of management and governance. It also deals with the external events like the natural catastrophe.

There is no perfectly defined regulatory pressures to put or adequate measures to monitor and control these category of risks. According to Basel II defined by The Basel Committee, an ORM framework is necessary for the business operating environment appropriate to its range and nature of treasury operations.

ORM enables the managers and decision makers to develop a wide overview across the enterprise in a holistic way in order to create a properly defined risk profile. This in turn will allow the business heads and the boards to utilize the framework for further governance of the organization. Operational

risks is a more dynamic subject.

Some of the elements of operational risks includes:

• Compliance
• Credit risks
• IT risks
• Investment
• Transaction processing
• Human resources
• Liquidity
• Taxation
• Fraud

Operational risk is an intrinsic part of all financial institutions and is a mandatory practice embed in the governance since the nature of risks are changing everyday. It is a standard recommended procedure for banking products, activities, processes and systems. Therefore it has always been an inevitable part

of any bank's risk management program.

A number of banking institutions are looking forward to adopt effective operational risk governance practices. The key to a sound risk management however lies in understanding the nature and complexity of operational risks. So go ahead and identify the operational risks surrounded in your business.