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Author's profile photo John Harrison

Operational Risk Management (ORM), do I need it?

A fire at a fertilizer factory causes upwards of a half-million dollar damage.

Organizations have long practiced what has become known as Operational Risk Management.  Identifying and prioritizing risks, either proactively or after a disaster, has been a long standing management activity. What has changed over the years is the treatment of risks in a holistic manner, elevating risk management to a senior management responsibility. Although practices have not progressed uniformly through different industries and organizations the general evolution toward operational risk can be characterized by a number of factors. There is a greater recognition of the variety, number and interaction of risks that an organization faces. The awareness of operational risk has increased recently due to a succession of high profile examples of organizations crippled or destroyed by the failure of control mechanisms (e.g. Enron) or by insufficient understanding of the dynamics of their business (mortgage crises). The advance of technology, the increasing pace of business, competition,  globalization, resource constraints,  complexity of supply chains, all contribute to a growing number and an increased complexity of risk. Further, companies are motivated by well publicized business and operational, regulators, rating agencies, stock exchanges, institutional investors, and others in corporate governance oversight bodies, have come to insist that senior management take on greater responsibility for the management of risks on an enterprise wide scale. This has resulted in an increased level of regulation. 

Do you understand your company’s risks? What areas of risk are your main concerns?

This posting is the second of a series of blogs discussing various factors of operational risk management as it pertains to manufacturing organizations. Please feel free to comment and discuss this series

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