Operational Risk Management (ORM)

This article discusses the management process of operational risk in financial institutions. While risk management has always been an integral part of financial activity, the 1990s has seen risk management establish itself as a key function within banks and other financial institutions. With greater emphasis on ensuring that money is not lost through adverse market conditions, counterparty failure or inappropriate controls, systems or people, risk management has become a discipline in its own right within financial markets. In this paper, we first review the different steps of the risk management process with respect to operational risk in the banking industry: the definition of operational risk, quantitative and qualitative methods for measuring operational risk, and risk management methods with respect to operational risk. In this study, we focus on the particular difficulties that arise with operational risk and argue that these steps cannot be treated separately as opposed to the management process of market or credit risk.