Financial services organizations are under intense scrutiny from regulators, customers, investors, employees, and even the public at large to efficiently manage operational risk.
One misstep – say a compliance problem or data breach – can jeopardize customer confidence, raise the ire of regulators, and result in costly fines. And that’s especially unwelcome news for an industry already contending with decreasing margins and increasing competition from nontraditional sources in a rapidly digitizing world.
These days, there is no patience or forgiveness for disparate risk management systems that obscure the truth.
The complex operational risks of financial services firms need to be viewed collectively, not individually. You must be able to connect the dots between all risks to make intelligent decisions that will achieve your goals. And a growing number of financial services firms are turning to Enterprise Risk Management to manage operational risk more consistently, more efficiently, and more accurately.
ERM pulls all of the pieces together so you can anticipate, assess, mitigate, and monitor every form of operational risk throughout your organization. It helps you understand the full impact of risk – negative and positive – so you can minimize threats, capitalize on opportunities, and build resilience. With ERM, risk transforms from an organizational liability into a strategic advantage.
Having the right technology is critical to managing operational risk efficiently and objectively across the enterprise. But that’s just the beginning. To be successful, the ERM mindset must be embedded into the very fabric of the organization. After all, risk is everywhere.
This guide will help you understand what ERM is, how it can be used to manage operational risk, and how to begin holistically managing risks and opportunities in a truly integrated way.
WHAT IS ERM – AND HOW CAN IT BE USED TO MANAGE OPERATIONAL RISK?
Operational risk arises from any threat that could disrupt operations. It includes many risk types – e.g., compliance, third party, cyber, fraud – that relate to serving customers and operating internally. Effectively managing these risks requires oversight and transparency across virtually all of an organization’s processes and business activities.
And that’s where ERM comes in.
ERM is a structured, proactive, and continuous process that is applied across the organization to better understand all risks, how they relate to each other, and the cumulative impact on the organization. It looks to increase an organization’s value by both minimizing losses and maximizing opportunities for growth.
Applying ERM to operational risk brings consistency, clarity, and efficiency to managing the diverse risks included under the operational umbrella. ERM adds discipline and accountability, transforming operational risk management from a subjective, manual list of disparate activities to an objective, data-driven, purposeful process.
With ERM, you can reduce the risk of operational damage by proactively identifying and managing potential threats – which is particularly critical in the high-stakes world of financial services.
Equally important is to recognize what ERM is not. It is not just one more risk management tool that works independently of other technology.
True ERM integrates risk management across the organization. It breaks down departmental silos and helps all disciplines work together more efficiently. It also recognizes that risks are interrelated, helps eliminate duplicate efforts, and provides the big-picture view necessary to identify trends and potential risks early enough to do something about them.