The (Operational) Risk Management Framework

The Risk Management Framework

The RMF provides an organization-wide consistent comprehensive, hierarchical structured guideline for managing risk.

After several iterations of creating a Risk Management Framework from the case study, you should have produced an RMF that looks like the one below (note 1) by using APS, MECE, and PV.

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The ORMF guides the organization on how to effectively manage operational risk by identifying exposures, creating the necessary controls to keep financial and reputational losses within the Risk Appetite, building resilience for rapidly recovering from any realized losses, and establishing a governance structure to ensure that all risk management processes are managed efficiently and effectively while complying with regulatory requirements."

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Perhaps yours looks different. That is ok provided it has the 4 essential components:

1. Exposure (these are the events that expose the organization to potential financial and reputational losses)

2. Controls (these are the processes designed and operated to keep the potential financial and reputational losses below the Risk Appetite

3. Resilience (since controls either by design or operation cannot be perfect in all circumstances, losses outside of the Risk Appetite will occasionally occur. Resilience is the capacity to absorb the financial loss and the capability to rapidly recover to the operational state before the loss occured.)

4. Governance (is having the right people, with clear roles and responsibilities, processes, and systems in place to ensure that efficiently and effectively the right exposures are identified, the right controls are implemented and the right resilience is in there

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Note 1: You might have come across the myth that in case studies there are no right or wrong answers. Nothing could be further from the truth. We can demonstrate this by considering the building of a house. Suppose you are asked to design a house in Toronto. Although there is no one single design for a house, all houses have certain essential components, and those components relate to one another in a specific way. For example, all houses have roofs and the roof is the topmost structure. There are many different ways to build a proper house. But there are countless wrong ways to build a house. So too with case studies, or more broadly in business and life in general. There is no single right answer but all the right answers share the same common features and relationships among the features.