Published On Jul 29, 2025
If the past few years have shown us anything, it’s that uncertainty is a constant in business. From data breaches to process failures, operational risks can disrupt performance, damage reputation, and trigger regulatory penalties.
Did you know companies with a structured risk management framework have reduced operational losses by over 35%? This highlights the real impact of implementing effective operational risk management practices not just for compliance, but for strengthening overall business performance and resilience.
This blog will explore everything you need to know about ORM, what it is, why it matters, and the operational risk management best practices.
What is Operational Risk Management?
Operational Risk Management is the practice of identifying, assessing, mitigating, and monitoring risks that stem from internal processes, systems, people, or external events. Unlike strategic or market risks, operational risks are tied to how the business functions on a daily basis. They’re often unexpected and can lead to significant financial, legal, or reputational damage if not addressed proactively.
Factors affecting operational risks include:
Human error
Changes in laws or regulations
Health and safety concerns
Internal process failures
Supply chain disruptions
Legal and regulatory challenges
Cyber threats
Fraud and theft
Natural disasters
Why is Operational Risk Management Important?
Implementing a structured operational risk management (ORM) strategy delivers essential advantages for organizations navigating today’s dynamic business environment.
Improves Decision-Making: By identifying and evaluating risks systematically, businesses gain better insight into potential challenges and opportunities, enabling faster, more confident decision-making.
Financial Stability: Proactively managing risks tied to processes, people, and systems helps prevent costly disruptions such as fraud, cyberattacks, or supply chain issues, supporting long-term financial health.
Improves Compliance: Operational risk management (ORM) frameworks support adherence to industry regulations, reducing the risk of penalties while strengthening trust with regulators, partners, and clients.
Reputation & Trust Protection: A strong ORM approach helps organizations respond effectively to incidents, safeguarding brand reputation and maintaining trust among customers, investors, and employees.
For example, a common operational risk is technology failure, such as a network outage that disrupts key systems. This can delay orders, cause revenue loss, and damage customer trust.
6 Key Steps in the Operational Risk Management Process
Effective operational risk management follows a clear, structured process to help you identify, assess, control, and monitor risks across your organization. Here’s how the typical ORM cycle works.
1. Risk Identification
Begin by identifying risks that could prevent your organization from achieving its objectives. Fortifai’s anomaly detection flags control gaps instantly, allowing teams to respond in real time. Its AI-driven insights help prioritize critical issues, streamline investigations, and reduce manual oversight. Ensuring stronger internal controls and faster risk mitigation.
Use methods like.
Process Analysis: Review internal functions (IT, HR, production, etc.) for weaknesses.
Loss Data Analysis: Examine past incidents and financial losses.
Workshops/Interviews: Gather employee insights on potential risks.
External Event Analysis: Consider industry trends and regulatory changes.
Scenario Analysis: Develop "what-if" scenarios to uncover hidden vulnerabilities.
2. Risk Assessment
Evaluate risks based on their likelihood and potential impact using a risk matrix. Fortifai’s AI-powered risk scoring automates this process by ranking risks dynamically, helping teams prioritize effectively. Capture high-priority risks in a register, assign ownership, and define mitigation plans, guided by audit findings, historical data, and real-time insights.
3. Risk Mitigation
Choose one of four responses to manage each risk:
Transfer: Shift risk through insurance or outsourcing (e.g., cloud vendors with breach insurance).
Avoid: Opt out of high-risk choices (e.g., reject unreliable vendors).
Accept: Proceed when risk is minimal or outweighed by benefits (e.g., installing coffee machines).
Mitigate: Implement controls to reduce the likelihood or impact (e.g., VPN for remote work). Always document residual risk—what remains after mitigation.
4. Control Implementation
Design and implement controls that directly address each risk. Controls can be:
Preventive (preferred),
Detective, or
Corrective.
Ensure controls are documented, communicated, and reviewed annually for effectiveness.
Tools like Fortifai’s Investigation Case Management provide full traceability, while its Risk Scenario Management ensures that red flags are captured as they arise.
5. Monitoring
Regularly test controls to ensure they’re working as intended. Monitor for changes in the environment or human error. With Fortifai’s built-in KRI dashboards, teams can generate board-ready reports effortlessly, visualizing trends, anomalies, and control gaps in real time. Automated alerts and AI-driven insights enable faster response and continuous risk awareness across the organization.
Use Key Risk Indicators (KRIs) for early warnings (e.g., falling customer satisfaction could flag service issues).
Set up automated alerts to respond quickly to rising risks.
6. Review and Improve
Finally, conduct post-incident reviews and regular audits to refine your risk approach. Update your frameworks, training programs, and tools to reflect new insights and regulatory changes.
5 Best Practices for Effective Operational Risk Management
To create a future-ready risk strategy, these five best practices should be embedded across your organization.
1. Build a Comprehensive Risk Framework
Operational risks exist at every level, systems, processes, and people. A strong risk framework should:
Identify all potential risks and assess their impact and likelihood
Define risk appetite and acceptable thresholds
Outline mitigation strategies, controls, and reporting procedures
Assign accountability for managing each risk
Ensure board-level approval and regular review to keep it aligned with business goals.
2. Automate Risk Data Collection
Source: Fortifai
Automating data collection enhances accuracy and efficiency. Use internal systems, regulatory reports, and industry benchmarks to gather insights. Tools like Forifai’s Data Foundation can automate ETL workflows, ensure high-quality data, and feed accurate inputs into your analytics engine, all in real time.
Consolidate data from multiple sources
Visualize trends
Enable real-time analytics
Reduce manual effort and errors
3. Monitor Key Risk Indicators (KRIs)
Use centralized dashboards to view risk levels across departments. Fortifai’s platforms allow you to track KRIs, flag priority areas, and give leadership teams real-time visibility into risk status and trends. Effective KRIs should.
Identify critical business components (people, systems, tech)
Track frequency, severity, and mitigation strategies
Rank risks by impact and relevance to business goals
Set clear thresholds for when action is needed
4. Establish a Risk Reporting System
Standardized, clear reporting templates ensure decision-makers stay informed. A good reporting system should.
Use visual tools (charts, dashboards) for clarity
Include both quantitative and qualitative data
Be tailored for different audiences (executives vs. operations)
Be tested and refined based on feedback
5. Continuously Improve Risk & Control Assessments
Regularly review and improve risk strategies. This includes.
Updating assessment criteria and documentation
Strengthening control testing
Learning from past incidents
Communicating updates to all stakeholders
Role of Technology and Tools in ORM
Technology plays a foundational role in scaling operational risk management. It improves visibility, consistency, and responsiveness, particularly in complex or highly regulated industries.
Here’s how platforms like Fortifai support modern ORM:
Investigation Management: Track, resolve, and report incidents with full audit trails
Automated Data Integration: Convert raw or unstructured data into usable formats for compliance and analysis
Real-Time Risk Detection: Identify fraud, control breaches, and compliance violations using AI
Compliance Monitoring: Stay aligned with ESG, AML, FASB, GDPR, and global regulatory standards
Security and Governance: Ensure data privacy, user access controls, and compliance documentation
Challenges in Implementing ORM
In many organizations, ORM remains one of the weakest links in ensuring consistent performance and stakeholder confidence. Although ORM is a critical component of Enterprise Risk Management (ERM), it often faces similar roadblocks, such as competing priorities and undervaluation, that hinder its effectiveness. Common challenges include.
Lack of Awareness and Communication: Limited understanding of ORM's strategic value leads to poor communication across departments and minimal organizational buy-in.
Insufficient Resources: Many organizations struggle to allocate adequate funding, tools, or personnel to build and sustain robust ORM or ERM programs.
Executive Disconnect: Boards and senior executives may lack interest, visibility, or appreciation for the role ORM plays in preventing operational failures and protecting long-term value.
Inconsistent Methodologies: Without standardized approaches for measuring and assessing risk, it becomes difficult to develop an accurate and unified risk profile.
Unclear Terminology: The absence of a shared language for discussing risk impedes the success of Risk and Control Self-Assessments (RCSAs) and other ORM processes.
Technological Complexity: Rapid changes in technology introduce new layers of risk and complicate existing processes, making ORM difficult to scale.
Functional Overlap: ORM is often bundled into other areas like compliance, IT, or finance, reducing its visibility and limiting dedicated attention.
Fragmented and Manual Systems: Many ORM programs remain reactive and overly complex, shaped by regulatory pressures rather than strategic foresight. As a result, they become siloed, inefficient, and difficult to operationalize at scale.
To overcome these barriers, organizations must elevate ORM from a compliance activity to a strategic function that actively supports resilience, agility, and long-term performance.
How Fortifai’s ORM Solutions Address Key Operational Risk Challenges?
Fortifai offers a comprehensive Operational Risk Management (ORM) solution that directly tackles the challenges organizations face today, ranging from compliance gaps and fraud risks to system failures and stakeholder concerns.
Instant Control Gap Detection: Fortifai’s real-time anomaly detection flags issues as they occur, allowing teams to respond immediately and reduce exposure.
AI-Powered Risk Scoring: Uses AI to rank risks based on likelihood and impact, helping prioritize actions through a dynamic risk matrix.
Reduced False Positives: A smart filtering engine lowers false positives over time, reducing alert fatigue and improving investigation efficiency.
Fully Auditable Digital Trail: Every investigation step, such as flagging, assignment, submission, and approval, is logged to ensure transparency and compliance.
Proactive Compliance Management: Shifts teams from reactive case handling to proactive risk governance, aligned with industry and regulatory standards.
Streamlined Due Diligence: Built-in background search tools support rapid, cost-effective due diligence on individuals and vendors.
Automated Reporting: One-click, legally defensible investigation reports save time and support audit-readiness with minimal manual effort.
Supports ESG & Regulatory Needs: Tailored to meet domain-specific requirements, from anti-bribery and GDPR to internal financial controls.
Conclusion
Operational risk is unavoidable, but how you manage it makes all the difference. By following a structured ORM process and implementing best practices, you can reduce risk exposure, improve compliance, and strengthen trust with customers, regulators, and stakeholders.
Source: Fortifai
Fortifai provides a powerful suite of AI-driven tools designed to modernize operational risk management. From real-time risk detection to automated investigations and compliance insights, our platform helps organizations like yours stay ahead of emerging threats.
Ready to see how FortifAI can improve your operational risk strategy? Contact us to explore our platform and discover how it can strengthen your management framework.
FAQs
Q1. What are the most important operational risk management best practices?
A1. Operational risk management best practices include automating data workflows, deploying AI to detect risks early, using dashboards to track KRIs, digitizing investigations, and building a risk-aware culture.
Q2. Why is operational risk management critical for regulated industries?
A2. Industries like banking, insurance, manufacturing, and pharma face strict compliance requirements. ORM helps prevent violations, protect reputations, and ensure operational continuity.
Q3. How does Fortifai support operational risk management?
A3. Fortifai provides AI-powered tools for fraud detection, investigation management, regulatory compliance, and high-quality risk data preparation—all in one integrated platform.
Q4. How can I measure the effectiveness of my ORM program?
A4. Use KPIs such as incident response time, number of resolved cases, reduction in manual work, false positive rate, and audit readiness to evaluate performance.
Q5. What are the three pillars of operational risk?
A5. The three core pillars of operational risk management are risk identification and assessment, risk mitigation and control, and monitoring and reporting. Together, these pillars form a proactive approach that enables organizations to detect potential risks early, implement effective controls, and continuously track and address issues to safeguard operations and ensure long-term resilience.
