Operational Risk Management and Its Role in Modern Business Stability

Operational risk management is no longer merely a procedure that appears during annual audits. In a modern business environment filled with applications, automated processes, and cross-departmental workflows, operational risk is present every day. In modern corporate environments, these risks hide behind system failures, human error, or internal procedural uncertainty.

For enterprise-scale companies, a reactive approach—handling problems only when they occur is no longer relevant. You need a structured Operational Risk Management (ORM) strategy to transform uncertainty into measurable operational stability.

What Is Operational Risk Management?

Operational Risk Management (ORM) is a continuous process encompassing risk assessment, risk decision-making, and risk control implementation, focusing on risks arising from failures in internal processes, people, and systems. Unlike strategic risks related to market competition, ORM handles hazards inherent in daily organizational activities.

Operational Risk Management (ORM) can be understood as an internal security system aiming to maintain company stability by managing risks originating internally, such as potential human errors, system disruptions, or procedural discrepancies. Its main focus is not on market competition, but ensuring that all daily operational activities run orderly, securely, and consistently, so the company can operate smoothly without unexpected disruptions from internal factors.

In practice, the fundamental goal of ORM is protecting the organization from financial losses and reputational damage due to operational inefficiencies. Effective ORM implementation provides full visibility to management, allowing you to detect potential vulnerabilities before they become fatal incidents.

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Common Sources of Operational Risk

• Process Errors: This risk arises from inconsistent workflows, outdated SOPs, or lack of clear documentation. Such disorder often leads to cost inefficiencies or compliance audit failures.
• Human Factors: Employees are the greatest asset yet also a significant risk gap, ranging from lack of training, negligence, to access misuse (insider threat). Managing employee access rights is crucial to suppress this risk.
• System or Technology Failures: Disruptions in application integration, server downtime, or cyberattacks are real threats. Poor incident management in this sector can instantly paralyze customer service.
• External Factors: Threats originating outside company control, such as sudden regulatory changes (e.g., UU PDP), natural disasters, or service failures from third-party vendors.

Structured Approach in Managing Operational Risk

Managing operational risk requires an approach that is not only theoretical but also practical and easily applicable in daily processes.

1. Identify Risks Early

The first step is mapping all business activities to find potential hazards. In the context of data protection, this is similar to the Record of Processing Activities (ROPA) process mapping data flows to see leakage gaps. Without accurate identification, you cannot manage what you do not know.

2. Assess Impact and Likelihood

Every risk must be scored based on 2 main metrics: how frequently it is likely to occur (frequency) and how large the loss caused by it (impact). Use risk assessment metrics to prioritize issues that are priorities in handling, especially those impacting the corporate Risk Assessment Framework.

3. Establish Measurable Controls

After risks are assessed, apply specific mitigation controls (steps to suppress risk and its impact). These controls can be tiered approval policies, data encryption, or Multi-Factor Authentication (MFA) implementation to restrict unauthorized access to critical systems. The goal is to lower risk to an acceptable risk level.

4. Monitor and Review Regularly

The business environment changes rapidly. New risks can emerge as applications or workflows change. Monitoring is needed so the company doesn’t get trapped in old approaches.

5. Provide Evidence and Documentation

Documentation is key in audits. Ensure every mitigation step, incident occurred, and improvement made is recorded in a centralized system. This facilitates the Evidence Management process when facing external auditors.

Difference Between ORM and ERM: Understanding Context

Confusion often occurs between Operational Risk Management (ORM) and Enterprise Risk Management (ERM). Although both are interrelated, their scope and focus differ fundamentally.

ERM is a comprehensive framework covering all organizational risks, including strategic, financial, reputational, and operational risks. ERM focuses on high-level risks affecting the company’s long-term vision and shareholder value.

Conversely, ORM is a specific part of ERM focusing deeply on daily processes. If ERM decides “where the ship will sail,” ORM ensures long-term priorities and goals during the voyage. Parts of both are needed to create comprehensive business defense.

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Challenges Faced by Companies When Managing Operational Risk

The biggest challenge faced by companies today is data fragmentation (data scattered and not integrated). Many organizations still rely on manual spreadsheets separated between departments to record risks.

This manual approach creates “data silos,” where the Legal team does not know risks faced by the IT team, and vice versa. This causes slow response to incidents and extraordinary difficulty when compiling reports for regulators.

Integrated platforms like Adaptist Privee overcome this problem by providing a Single Source of Truth (SSOT), enabling cross-team collaboration in one transparent dashboard.

Read Also : Third-Party Risk Management: Reducing Vendor Risk in the Digital Era

Case Study: Fatal Consequences Due to Risk Management Failure

1. Target: Security Gap from Third Party (Vendor Risk)

In 2013, retail giant Target experienced a massive data leak exposing personal information of around 70 million customers and payment card details of over 40 million users. This attack was not conducted directly against Target’s core servers, but through credentials of a third-party vendor with access to their internal network.

As a result of the incident, Target bore recovery and legal settlement costs reported to reach over USD 162 million, faced mass lawsuits, and suffered significant reputational damage which ultimately led to the resignation of Target’s CEO at the time. (source: The Guardian)

2. Knight Capital Group: Financial Ruin in 45 Minutes

In 2012, Knight Capital Group — a global financial services firm engaged in stock trading — suffered massive losses due to an error in their automated trading software. On August 1, 2012, a malfunctioning trading program sent millions of buy and sell orders rapidly to the market in just minutes, causing improper trading and massive losses for the company.

In about 45 minutes, Knight Capital suffered losses around USD 440 million, which nearly wiped out most of its capital and caused company stock to plummet. Consequently, the company lost investor trust and had to seek emergency funding and later agreed to merge with another company to avoid total bankruptcy. (source: The New York Times)

Positive Impact of Neater Risk Management

Mature ORM implementation is not just about avoiding problems, but also creating added value for the company:

• Operational Stability: Business processes run more consistently by minimizing sudden disruptions detrimental to productivity.
• Data-Driven Decisions: Management has a strong and accurate data foundation in making strategic decisions, not just assumptions.
• Proactive Mitigation: Ability to detect and handle risks in early stages before developing into major crises consuming high recovery costs (Incident Management).
• Audit Readiness: Neat documentation and tested controls simplify regulatory compliance, reducing audit preparation time.

Transforming Risk Into Centralized Control with Adaptist Privee Support

In an era where data is both the biggest asset and liability, operational risk management can no longer be run manually or fragmented. Reliance on spreadsheets to map complex workflows will only create dangerous vulnerabilities for your business continuity.

To achieve true stability, you need a system capable of transforming uncertainty into measurable visibility. Adaptist Privee arrives not merely as a regulatory compliance tool, but as the foundation of corporate risk infrastructure.

Adaptist Privee allows you to map all data processing activities (ROPA) and identify vendor risks through Third Party Risk Assessment in one integrated dashboard. This is a definitive step to cut audit inefficiency by up to 70% and ensure every operational gap is tightly closed before becoming an incident.

With the support of Adaptist Privee, your company can build a digital ecosystem that is secure, time-efficient, and ready to grow without sacrificing data protection or user convenience.

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