35 Operational Risk Management Key Terms
Welcome to our guide on operational risk management! We’re excited to share with you the top 35 key terms and concepts that every business owner, manager, or employee should know when it comes to managing operational risks.
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Operational Risk Management (ORM): The process of identifying, assessing, monitoring, and controlling operational risks to minimize the impact on an organization’s performance and profitability.
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Risk Assessment: The process of identifying and analyzing potential issues that could negatively impact key business initiatives or critical projects.
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Risk Mitigation: The process of developing strategies to reduce or eliminate the impact of negative risks on an organization.
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Internal Controls: Processes, rules, and procedures implemented to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.
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Compliance Risk: The risk of legal or regulatory sanctions, financial loss, or loss to reputation an organization may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to its activities.
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Audit Trail: A record that shows who has accessed an organization’s information system and what operations they have performed during a given period.
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Business Continuity Planning (BCP): The process involved in creating a system of prevention and recovery from potential threats to a company.
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Disaster Recovery: Policies and procedures related to preparing for recovery or continuation of technology infrastructure critical to an organization after a natural or human-induced disaster.
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Due Diligence: The investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract.
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Key Risk Indicators (KRIs): Metrics used to provide an early signal of increasing risk exposures in various areas of an organization.
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Risk Appetite: The level of risk that an organization is prepared to accept in pursuit of its objectives, before action is deemed necessary to reduce the risk.
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Risk Tolerance: The acceptable level of variation in performance relative to the achievement of objectives.
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Incident Management: The process responsible for managing the lifecycle of all incidents to ensure that normal service operation is restored as quickly as possible.
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Fraud Risk: The risk from intentional acts to deceive or defraud an organization.
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Cybersecurity Risk: The risk of financial loss, disruption, or damage to the reputation of an organization from some sort of failure of its information technology systems.
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Third-Party Risk: The risk related to dealing with outside parties, including vendors, contractors, and partners.
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Operational Efficiency: The ability to deliver products or services in the most cost-effective manner without sacrificing quality.
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Risk Culture: The norms and traditions of behavior of individuals and of groups within an organization that determine the way in which they identify, understand, discuss, and act on the risks the organization confronts and the risks it takes.
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Stress Testing: A simulation technique used on asset and liability portfolios to determine their reactions to different financial situations.
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Scenario Analysis: The process of analyzing possible future events by considering alternative possible outcomes (scenarios).
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Liquidity Risk: The risk that an entity will not be able to meet its financial obligations as they come due.
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Market Risk: The risk of losses in positions arising from movements in market prices.
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Credit Risk: The risk of loss arising from a borrower who does not make payments as promised.
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Reputational Risk: The risk of loss resulting from damages to a firm’s reputation, in lost revenue; increased operating, capital, or regulatory costs; or destruction of shareholder value.
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Asset Liability Management (ALM): The practice of managing financial risks that arise due to mismatches between the assets and liabilities (debts and assets) of the company.
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Enterprise Risk Management (ERM): The process of planning, organizing, leading, and controlling the activities of an organization in order to minimize the effects of risk on an organization’s capital and earnings.
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Risk Reporting: The process of reporting the findings of the risk management process, including the level of risks and the actions taken.
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Hazard Risk: Risks of loss resulting from property, liability, or personnel events.
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Quality Assurance (QA): The maintenance of a desired level of quality in a service or product by means of attention to every stage of the process of delivery or production.
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Root Cause Analysis (RCA): A method of problem-solving used for identifying the root causes of faults or problems.
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Operational Resilience: The ability of an organization to continue the delivery of critical operations through operational disruptions.
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Governance, Risk, and Compliance (GRC): The integrated collection of capabilities that enable an organization to reliably achieve objectives, address uncertainty, and act with integrity.
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Change Management: The systematic approach and application of knowledge, tools, and resources to deal with change.
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Information Security (InfoSec): The practice of preventing unauthorized access, use, disclosure, disruption, modification, inspection, recording, or destruction of information.
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Health and Safety Risk: The potential for harm, injury, or illness to occur in the workplace.
These terms encompass a broad spectrum of concepts crucial for operational risk management, providing a comprehensive overview essential for effectively identifying, assessing, and controlling risks within an organization.
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