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3 Innovative Ways to Add Value through Operational Risk Management

Operational Risk continues to be a topic of interest across industries. Uncertainties abound. Cyber risks are pervasive as ever and political change brings new complexities to compliance activities.

As organizations face continuing cycles of disruptions, operational management leaders are taking a closer look at risk management technology, processes and skills to help manage change.

Integrated governance, risk and compliance (GRC) software platforms support a risk management culture that offers a better service delivery model, reduced structural costs, and transparency into the risk profile. By pulling together the tactical aspects of operational risk management across the entire organization, GRC software can help organizations achieve a higher quality of oversight and support innovative approaches to managing risk.

Here are three ways to leverage integrated risk management software to add value to your organization.

Utilize GRC platform data for insurance program decisions

Operational risk management can bring increased transparency to managing risk through the insurance program when it is supported by an integrated software platform. Corporate risk managers utilizing software have access to granular data related to variables that impact risk profiles, and while this data can better illuminate costs of risks, it is often not part of the underwriting process. Utilizing this data to better align the risk management profile with the insurance program could mean savings of insurance premiums, resulting in real dollars being saved. 

For example, mitigating harmful exposures organically means improving the control environment. The risk and control data detailed within the software can evidence risk management’s strength. Moreover, a reduction in internal losses through controls or management activities may be an opportunity to self-insure or to retain certain risk exposures. 

Link risk events to performance measures

As the regulatory environment becomes ever more complex and risks proliferate, boards of directors and management teams are tightening the link between risk assessment and strategic planning. 

The board’s compensation committee has long tied performance measures for executives to company goals and culture; increasingly boards are also exploring how performance measures can reinforce a responsible balance between risk and reward. 

Understanding risk events is an important feedback mechanism to business planning. Losses concentrated in certain geographies, products/services, or in operational processes can provide support for enhancing – or reducing, for that matter – the control environment. Robust risk and compliance software has the capability to manage such events. 

  • It can provide insight into the risk and control environments by defining details about the loss.
  • It can deliver data for input into quantitative analysis like Value at Risk (VAR) calculations and potential support for holding economic or regulatory capital.
  • It can also bring clarity to functions like legal where experience and judgment can assist in determining reserves and full event losses.

Tying events to performance measures is gaining some traction, especially within the executive ranks. This assures that there is alignment between business planning and decisions of risk-taking or risk avoidance. For example, one organization uses loss amounts as one of the variables for an executive bonus – higher losses equate to a lower bonus. 

Give the C-suite real-time visibility into risk management activities

A key function of risk management is to appraise the organization of risk and avoid surprises. This can be achieved in today’s complex business environment by having a fluid and dynamic risk management culture supported by tools that create transparency into the organization’s risk and control environment.

Yet many organizations still have a formal cadence of an annual risk assessment with quarterly updates. Unfortunately, a static cadence provides little confidence to executives, the board, or regulators that risks that occur with a higher frequency may be missed. Cyber threats, distributed denials of service (DDoS), and other IT risks aren't annual events – they're practically daily challenges. 

Integrated governance, risk and compliance software can make the metric management process dynamic and fluid. Dashboards organize data from a disparate array of sources across the entire enterprise and consolidate it to quickly visualize changes in the risk profile whether it is by role, function, or the organization as a whole.

Risk management software also offers the possibility to drill down into the risk and control detail. The real-time awareness that is created through these mediums provides insight, for example, into weaknesses in the control environment, thereby stimulating the need for action. It also provides the mechanism of the completeness of the risk management program and its sustainability. 

This gives confidence to executives, audit, the board, and regulators that there is breadth and depth to the risk management program.

These are just a few examples of innovative applications of tech-enabled risk management frameworks. Our clients are leveraging SAI360's solutions to uncover value across a spectrum of operational risk management processes.

 


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