Operational Risk Management- An overview

Operational Risk Management- An overview

While talking about Risk and Control Self-Assessment, the first thing that ought to be mentioned in the process of Operational Risk Management. The cyclic process of operational risk management consists of a chain of events that includes risk management, risk decision making, and implementation of risk control measures. The complete process results in acceptance, eradication, and avoidance of similar risks in the future.

Risk and control self-assessment (RCSA) is a process through which observed or informed operational risks and control measures are assessed and examined. The primary objective of RCSA is to ensure that all set goals or strategies for a firm are fulfilled. Apart from this, a few other primary objectives of the process are-

1. Ensuring the reliability and integrity of the obtained information
2. Exercising compliance with various company policies, rules and regulations, laws, and contracts, etc.
3. Safeguarding the company assets
4. Playing economic roles and utilizing the resources properly
5. To accomplish the established objectives and strategies for further development

Risk Control Self-Assessment and its challenges

The process of RCSA is a dynamic process; it is always subject to changes. Also, the process proved to be iterative as it changes upon the effectiveness it displays on the implementation of specific strategic activities, mainly adopted for mitigating and avoiding risks. The process can be outlined as-

1. Documentation of the overall control environment
2. Identification and assessment of potential risks
3. Defining the RCSA entity involved
4. Identifying various key controls
5. Assessing and rating the essential controls against operational risk factors
6. Creating corrective plans for implementation
7. Reviewing and approving the control measures taken against the operational risks

In spite of implementing successful risk management strategies for various observed operational risks, RCSA comes with certain drawbacks that limit the maximum risk management potential. The flowing are some of the critical challenges that RCSA face during its conduction-

1. The complete procedure of RCSA and its conduction is complex. There are numerous classifications of risk, and those individual risks claim to be attended by particular experts one at a time. This stretches the process for a substantial time interval.
2. In collaborative assessment techniques, heads from separate business departments are gathered together for an efficient, face to face conversation aimed towards mitigation and avoidance of the observed operational risk factors, but the actual efficiency and productivity of this measure are under considerable doubt.
3. The limitations provided by the system called compelling challenges withholds the further implementation of control measures and its assessment. The prevention of groupthink in any of RCSA proceedings should be exercised for successful outcomes.
4. Shortage or inadequate infrastructure facilities constricts the firm to maintain the proper data and information and chalking out potential risk factors that may hamper the firm.

These are the 4 key challenges that the conduction of Risk Control Self-Assessment faces.

Because RCSA is linked intricately with the functioning and working of business firms, it helps to focus on the potential factors and formulates the strategic plans that are beneficial for the organization.