Operational risk management (ORM) has always been on the radar for business owners and senior management. However, hybrid work models, tighter regulations, and escalating cyber threats have raised the stakes and added new challenges to managing operational risks.
Effective operational risk management now goes well beyond meeting check-the-box requirements. Risk management protects your bottom line from financial losses stemming from failed internal processes, external events, and employee error.
Key Operational Risks To Watch
Workers’ Compensation
What can go wrong: Remote employees injure themselves during working hours.
Why it matters: Clarify whether your policy covers at-home incidents to keep your company protected against liability issues.
Regulatory Changes
What can go wrong: Conflicting city, state, and federal rules create compliance gaps.
Why it matters: Non-compliance drives fines and operational disruptions.
Data Breach and Cyber Risk
What can go wrong: Lax controls over PCI, HIPAA, or consumer data invite attacks.
Why it matters: Average cyber losses now exceed $4 million per incident.
Fair Credit Reporting Act (FCRA)
What can go wrong: For financial service companies that credit report, risks include inaccurate credit reporting or slow dispute resolution.
Why it matters: Leads to costly class-action lawsuits.
Business Interruption
What can go wrong: Vendors suspend services without notice.
Why it matters: Interrupts cash flow and customer experience.
Employment Practices (EPLI)
What can go wrong: Wage-and-hour issues, wrongful termination, or discrimination claims.
Why it matters: Settlements can exceed insurance limits.
Privacy and HIPAA
What can go wrong: Disclosure of employee health information.
Why it matters: Triggers regulatory penalties and damages trust.
An Operational Risk Management Process That Works
Managing Operational Risk: Prevention
Prevention is the best protection against risk. Your operational risk management strategy should contain many ways to pinpoint and prevent problems that cause danger or financial loss to your business.
- Risk Identification and Assessment
Map every key risk: people, process, technology, and external events. Use incident data and near-miss reports for evidence-based assessments. Knowing your company’s points of risk helps you prioritize and plan.
- Policies, Procedures, and Training
Document clear, current procedures. Reinforce them through onboarding, annual refreshers, and year-round learning. A healthy call center training program is essential to ensure your agents are following company guidelines. Your training should include call scripts and other rules that keep you compliant.
- Testing, Auditing and Remediation
Run internal audits and penetration tests. Close gaps fast to prevent repeat incidents.
- Complaint and Incident Response
A transparent channel for complaints will reveal hidden issues. Make it easy for consumers to bring complaints directly to your company. This is an essential strategy for risk mitigation, since complaints help you detect and correct risk.
- Open-Door Culture
Encourage employees to flag concerns early, before they become costly. Create a culture where employees feel comfortable sharing concerns to aid productivity and build a positive work environment. Feedback can also serve as a risk detection and mitigation tool. When staff feel comfortable sharing situations before they become serious, you can prevent more internal risks.
Managing Operational Risk: Risk Shifting
Unfortunately, there are times when you can’t avoid risk. For these situations, your operational risk management strategy should contain risk-shifting strategies that can help minimize damage and cost.
- Contractual Indemnification
Shift specified liabilities to vendors or clients, and beware of contract terms that shift risk back to you.
- Insurance Program Optimization
Review insurance policy coverage limits and exclusions for cyber, EPLI, and business interruption. Include yourself as an additional insured on higher-risk vendor policies.
- Vendor Risk Oversight
Request proof of insurance, SOC 2 reports, and documented controls. Track renewals and policy changes.
Building Your Operational Risk Management Plan
Managing operational risk means having a structured risk management strategy that blends proactive controls with smart risk transfer.
By creating this operational risk management framework that formally addresses risks, financial services leaders not only avoid costly surprises but also strengthen trust with customers, regulators, and investors.
Here’s a step-by-step guide on how to carry out your operational risk management plan:
- Define Scope and Objectives: Align ORM goals with strategic priorities and regulatory obligations. Identify these goals by highlighting problem areas within your business or common rules and regulations within your industry.
- Gather Risk Data: Leverage loss history, key risk indicators (KRIs), and near-miss logs to quantify exposure. Review old company records and evaluate times your company almost experienced a serious issue. Evaluate these incidents to determine future risk.
- Select Controls and Mitigation Strategies: Prioritize high-impact, high-likelihood risks first. Make an immediate plan for any problems that are likely to occur again, frequently, or at great cost to your business.
- Assign Ownership: Choose who will be responsible for any changes or additions to company policies and procedures. Senior management should sponsor the plan; operational teams should execute it.
- Implement and Monitor: Communicate changes to every team that might be impacted and make policy documents available for reference. Use dashboards to track KRIs and control effectiveness.
- Review and Improve: Schedule quarterly reviews to adapt to new threats and regulatory updates.
Ready to tighten your own operations risk management? Start with a gap analysis of your current program, then build out the controls, training, and contractual protections you need to safeguard your organization today and for whatever comes next.
PDCflow for Security and Risk Management for eSignatures and Payments
PDCflow’s esignature, document, and payment software is designed for secure, compliant esignature requests, document delivery, and payments. This helps companies reduce risk, protect customer data, and simplify work for staff.
- PCI compliance: PDCflow helps companies take secure payments in the office or with remote teams. Customers can pay via email or SMS link, without having to read card data over the phone.
- HIPAA compliance: PDCflow’s platform offers HIPAA-compliant communication workflows that can be delivered via email and SMS. Organizations can send messages or documents, get esignatures, or request photos, files, and payments while keeping PHI safe.
- Tokenization and encryption: PDCflow encrypts data and tokenizes payment information. This way, it can be remembered for future transactions while still staying secure from data breaches.
- Secure data storage: PDCflow captures and stores data in our secure vault, without it ever entering your company’s systems, to reduce your company’s risk.
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- ABOUT THE AUTHOR -
Hannah Huerta, Marketing Specialist
Hannah Huerta is a Marketing Specialist at PDCflow. She creates content for the accounts receivable and payment industry.
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