Managing operational risks consist of
Identify the exposure to financial and reputational losses arising from carrying out business activities within a specific internal and external business environment
Determine the controls necessary to contain those potential losses within a risk appetite
Develop resilience strategies and secure resources to rapidly recover from some of those losses which will inevitably occur
Develop a governance structure to effectively and efficiently ensure that the first 3 are adequately managed throughout the firm.
This provides you with the operational risk management framework (ORF) to tackle any operational risk issue.
Confronted with any situation, like say launching a new product, you as an operational risk manager will identify the operational risk exposure arising from launching this new product, design and implement proper controls and ensure that they are working effectively to ensure that the associated potential financial and reputational losses are contained with our risk appetite. Since no controls are perfect or remain perfect losses above the risk appetite will rarely but occasionally occur, you will ensure operational resilience by developing the strategy and securing resources to rapidly recover from those losses. And then create the right governance structure by developing the policies that define the requirements and roles and responsibilities to make sure that the identification, control, and resilience are effectively and efficiently implemented and meet regulatory expectations.
You would apply the same operational risk management framework to manage the operational risks arising from an existing business activity y such as Retail Banking, or Trading and Sales are adequately managed. The same process can be applied at more granular levels, to say account opening in Retail Banking and trading government bonds in Trading and Sales.
Next, you will learn how to do each of the components of the ORF starting with identifying exposures.
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