.png)
Operational Risk Management: Embedding Ownership, Culture, and Resilience
- Julien Haye
- Sep 13, 2024
- 22 min read
Updated: Oct 6
Introduction: Why Operational Risk Demands Board-Level Attention
Operational risks are the ones most likely to halt service delivery, erode trust, or trigger regulatory scrutiny. Yet they are also the risks leaders find hardest to govern. In a recent practitioner poll, nearly half of respondents (49%) said their biggest Operational Risk Management (ORM) challenge was unclear first-line ownership, while another 29% admitted their RCSAs don’t drive real decisions. These gaps illustrate why operational risk remains both pervasive and underestimated.
The scope goes beyond processes and controls. More than 40% of leaders point to people and leadership as their greatest vulnerabilities, even above technology or third-parties. And when asked what kind of risks are hardest to manage, two-thirds identified strategic uncertainty and cultural blind spots, areas that rarely fit into neat models but can bring operations to a standstill when ignored.
Regulators are raising expectations, demanding boards demonstrate that frameworks work in practice and not just on paper. Yet the strongest organisations go further: they embed operational risk into strategy, connect it to appetite and capacity, and use it to build resilience. For CROs, this means turning ORM into foresight and assurance. For boards, it means ensuring accountability is visible and effective across the organisation. Yet, collaboration between the lines of defence remains uneven; in Europe, only 6% of risk managers have first-line functions in scope, underscoring why ownership often diffuses in practice (See FERMA Global Risk Manager Survey Report - 2024 p36)
This article explores how to make operational risk management a strategic discipline. It sets out the core elements (governance, culture, tools, and testing) and shows how leaders can shift ORM from a compliance burden into a source of resilience, trust, and competitive strength.
Table of Contents:
Understanding Where Operational Risks Emerge
Managing operational risk begins with clarity about where vulnerabilities originate and how they interact across people, processes, technology, and external dependencies. These risks rarely act in isolation. They compound through weak governance, cultural barriers, or interconnected systems that amplify disruption. Recognising their sources is central to effective oversight and decision-making.
People and Culture
Human behaviour remains one of the most powerful forces shaping operational outcomes. Mistakes, misconduct, and delayed escalation often stem from unclear accountability or low psychological safety. When people hesitate to speak up, warning signals disappear into silence. Strong leadership tone, defined decision rights, and open dialogue form the foundation of visible accountability. In 2025, organisations are also addressing new human–machine dynamics from AI-assisted decision bias to skill erosion created by over-reliance on automation.
For a deeper exploration of these dynamics and the organisational conditions that influence behaviour and performance, see People Risk in Financial Services which examines how leadership, incentives, and culture translate directly into operational outcomes.
Processes and Controls
Weak processes create fragility that no control can fully offset. Inefficient workflows, poor handovers, and duplicated checks undermine reliability and increase exposure to operational failure.
High-performing organisations apply control rationalisation to remove complexity, focusing assurance on what truly protects value. Process automation, where used, demands equal investment in testing and governance to ensure resilience keeps pace with innovation.
Weak process governance often manifests first as compliance breaches, a signal that oversight, documentation, or accountability structures are failing upstream. Managing operational risk means treating such breaches not as isolated issues, but as indicators of deeper design and ownership weaknesses.
Technology and Data
Technology now defines both operational strength and vulnerability. System outages, cyber incidents, and data integrity failures can halt critical services or trigger regulatory action. The global average breach cost reached USD 4.88M in 2024 (USD 6.08M in financial services), while explainability is now cited as a top gen-AI risk by 40% of executives (see Cost of a data breach 2024: Financial industry IBM)
Leading CROs extend oversight beyond infrastructure to include AI model governance, cloud-dependency risk, and data lineage assurance. The expectation has shifted from basic IT control to continuous operational readiness measured in recovery capability, not uptime alone.
Third-Parties and External Dependencies
Dependence on vendors, payment processors, and cloud providers expands the risk perimeter far beyond the organisation’s direct control. Each new integration introduces potential single points of failure.
Ecosystem exposure is now the norm: 81% of organisations report a supplier-ecosystem breach impact in the past year, and regulators are moving to collect data on third-party concentration risk. (see BlueVoyant Recognized in Gartner’s Market Guide for Third-Party Risk Management Technology Solutions May 29, 2025)
Modern risk management demands continuous third-party monitoring, fourth-party transparency, and concentration-risk mapping. Embedding this visibility into operational dashboards allows leadership to anticipate where disruption could cascade before it reaches the customer.
If you are developing structured oversight of external partners, see Third-Party Risk Management Policy: Framework, Standards, and Examples, a detailed guide on building sustainable supplier-risk governance aligned to modern regulatory and resilience expectations.
Strategy and External Environment
Strategic decisions create operational exposure long before results appear on a balance sheet. Rapid growth, technology adoption, and restructuring can test capacity and blur accountability lines. External shocks from geopolitical instability to regulatory divergence or climate disruption compound this exposure.
Integrating operational risk insight into strategic planning ensures leadership understands where fragility exists within ambition. It turns ORM from reactive assurance into a discipline that shapes execution.
For practical guidance on embedding this alignment, see How to Design and Implement a Risk Strategy, a tutorial on structuring risk strategy to connect ambition, capacity, and governance in a coherent framework.
Note on Compounding Risks
In this context, compounding describes how multiple operational risks interact and reinforce each other over time. A small control weakness, communication lapse, or system dependency may appear manageable on its own yet when combined, these elements create exponential pressure on decision-making and resilience. Effective operational risk management recognises these interconnections and prioritises action where vulnerabilities converge.
Importance of Operational Risk Management
Operational risk management protects the organisation’s ability to deliver on its purpose. It ensures that daily operations, strategic initiatives, and governance practices function within defined boundaries of capacity and control. When done well, ORM becomes a system of assurance that strengthens decision-making and reinforces trust across all stakeholders.
The materiality and shape of operational risk vary by industry, reflecting how each sector creates value and manages its core dependencies.
Sector | Primary Business Levers | Dominant Operational Risk Drivers | CRO and Board Focus |
Banking & Financial Services | Credit and market performance, digital trust, regulatory integrity | Process and system failures, cyber and data breaches, conduct and culture risk, third-party and cloud dependency | Strengthen integrated control testing, data resilience, and culture of escalation. |
Insurance | Underwriting accuracy, claims efficiency, capital management | Process integrity, model governance, third-party administrators, fraud and mis-selling | Enhance model validation, data governance, and customer-outcome monitoring. |
Asset & Wealth Management | Investment performance, fiduciary trust, reporting accuracy | Data and valuation errors, compliance breaches, third-party custodians, cyber intrusion | Reinforce governance of outsourced functions and regulatory disclosure. |
Payments & FinTech | Transaction speed, customer trust, regulatory licensing | Technology and cloud dependency, resilience lapses, AML/KYC control failure | Embed resilience and incident testing as continuous assurance disciplines. |
Energy & Utilities | Asset reliability, safety, supply continuity | Asset failure, maintenance gaps, contractor oversight, cyber-physical security | Integrate safety, environmental, and cyber frameworks within unified resilience planning. |
Manufacturing & Industrials | Production efficiency, supply-chain continuity, quality control | Equipment failure, supplier disruption, product recall, health and safety incidents | Build supply-chain visibility and real-time incident monitoring. |
Technology & Telecommunications | Service uptime, scalability, innovation, data privacy | System outages, cyber and privacy breaches, vendor concentration, talent dependency | Develop AI model governance and data-ethics assurance alongside resilience testing. |
Healthcare & Life Sciences | Patient safety, compliance, supply-chain reliability | Data protection failures, clinical process errors, third-party suppliers, ransomware | Treat data integrity and patient safety as integrated operational-risk priorities. |
Public Sector & Non-Profit | Service delivery, transparency, stewardship | Process inefficiency, data mismanagement, fraud, delivery-partner risk | Focus on accountability, digital modernisation, and ethical governance. |
Retail & Consumer Goods | Supply-chain agility, brand reputation, digital experience | Logistics disruption, product safety, platform outages, supplier integrity | Strengthen supplier governance and digital continuity to protect brand value. |
Effective operational risk management:
Protects value, reputation, and financial performance. By identifying and mitigating risks early, organisations prevent losses and maintain credibility with regulators, customers, and investors.
Improves efficiency. Streamlined processes, clear accountability, and rationalised controls reduce duplication, lower costs, and enhance operational performance.
Enhances foresight. Continuous monitoring and scenario analysis turn operational data into early warning signals that support strategic agility.
Supports regulatory and governance confidence. A transparent control environment and clear escalation channels enable boards and executives to demonstrate resilience and accountability.
Strengthens business continuity. Managing risks across critical services safeguards delivery, recovery, and impact tolerance when disruption occurs.
Connects risk appetite and execution. Linking operational risk to appetite and capacity ensures resources, controls, and decisions align with what the organisation can realistically sustain under pressure.
An effective ORM discipline builds a foundation of trust and performance that allows the organisation to operate with confidence in an unpredictable environment.
👉 See how operational risk becomes a strategic discipline: explore our Integrated Risk Management Pathway™. It sets out how boards and executives can align appetite, tolerance, capacity, and control design into a single framework that strengthens governance and decision-making.
When does an organisation need to manage operational risks?
All organisations, regardless of their size, nature (e.g., for profits, government agencies, non-profits, charities, etc.), and their activity(ies), face some sort of operational risk. So, they all need operational risk management (ORM) and, potentially, a supporting framework at various points in their lifecycle to ensure their operations are resilient, efficient, and aligned with strategic objectives.
As the operating environment grows more digital, regulated, and interconnected, leaders reach a stage where informal or siloed controls no longer provide sufficient assurance. Here are some key situations and triggers in which an organisation should prioritise ORM and consider adopting a structured framework.
Regulatory and Compliance Requirements
When Required by Law or Regulations: Organisations in highly regulated industries, such as banking, insurance, healthcare, and energy, often face specific legal requirements for managing operational risks. For example, Basel III mandates banks to maintain adequate capital reserves against operational risks.
To Comply with Industry Standards: Compliance with industry standards such as ISO 31000, COSO, or NIST may be necessary to meet stakeholder expectations, regulatory mandates, or to obtain certifications that enhance market credibility.
Strategic Decision-Making
During Strategic Planning or Expansion: When an organisation is planning strategic changes such as expansion into new markets, mergers, acquisitions, or launching new products or services, ORM helps assess potential risks associated with these initiatives, enabling more informed decision-making.
When Developing New Business Models or Processes: Introducing new business models or changes to operational processes can create new risks. ORM ensures these risks are identified, assessed, and managed from the outset.
Operational Disruptions and Incident Response
After Experiencing Significant Operational Disruptions: If an organisation has experienced a major operational disruption, such as a cybersecurity breach, data loss, supply chain interruption, or natural disaster, implementing a robust ORM framework can help prevent similar incidents in the future.
In Response to Increased Incident Frequency: An uptick in operational incidents, such as equipment failures, process errors, or customer complaints, may signal underlying risks that require a systematic approach to identification and mitigation.
Risk Appetite and Management Needs
When the Organisation Has a Low Risk Appetite: Organisations that have a low tolerance for risk such as those in sectors with high reputational stakes or critical service delivery responsibilities, need a structured ORM framework to proactively identify and mitigate risks.
To Support Enterprise Risk Management (ERM): ORM is a critical component of a broader Enterprise Risk Management (ERM) strategy. Organisations focused on managing risks across all areas (strategic, financial, compliance, and operational) should integrate ORM into their ERM framework.
Internal and External Changes
Significant Organisational Changes: Changes such as restructuring, leadership changes, or shifts in organisational culture may bring about new operational risks that need to be identified and managed.
Changes in the External Environment: External factors, such as regulatory changes, technological advancements, economic shifts, or geopolitical events, can introduce new risks or change the profile of existing risks, necessitating an ORM framework to adapt to these changes.
Digital Transformation and Cybersecurity Needs
During Digital Transformation Initiatives: As organisations undergo digital transformation, including the adoption of new technologies (AI, cloud computing, IoT), they face new risks and potentiel increased fragility related to automation, data-driven decisioning, AI adoption, data security, privacy, and system integration. ORM ensures algorithmic bias, data integrity, and dependency on digital infrastructure are governed with the same rigour as traditional controls.
To Enhance Cybersecurity Posture: As cyber threats become more sophisticated, organisations need robust ORM to manage cybersecurity risks, protect sensitive data, and ensure the integrity of their systems and operations.
Third-Party and Ecosystem Dependencies
Expanding Vendor and Ecosystem Exposure: As organisations extend their reliance on external providers, whether for cloud services, payment processing, logistics, or data analytics their operational-risk perimeter expands well beyond direct control.ORM provides the structure to manage third-party resilience, concentration risk, and fourth-party transparency, ensuring service continuity even when critical dependencies fail.
Integrating Third-Party Risk into Enterprise Oversight: Effective ORM links vendor oversight to broader governance processes such as risk appetite, scenario testing, and impact tolerance. This integration enables leadership to understand how external dependencies influence resilience, cost efficiency, and regulatory expectations.
Performance Improvement Goals
To Improve Operational Efficiency and Resilience: Organisations looking to improve operational efficiency, reduce costs, and enhance resilience benefit from ORM practices that identify process inefficiencies, bottlenecks, and potential failure points. Learn more in our article Building Operational Resilience.
To Strengthen Decision-Making Processes: Effective ORM supports better decision-making by providing a comprehensive understanding of operational risks, their potential impact, and mitigation strategies.
Stakeholder Expectations
To Meet Stakeholder Demands: Investors, customers, employees, and partners increasingly expect organisations to manage risks proactively. An ORM framework can demonstrate the organisation's commitment to risk management and build stakeholder trust.
In Response to Audits and Reviews: If internal or external audits reveal deficiencies in risk management practices, an organisation may need to implement or strengthen an ORM framework to address these gaps.
Business Continuity and Crisis Management
To Develop a Business Continuity Plan: Organisations need ORM to identify critical operational risks that could disrupt their business, allowing them to develop and implement robust business continuity and disaster recovery plans.
For Crisis Preparedness and Response: Effective ORM helps organisations prepare for potential crises (e.g., natural disasters, cyberattacks, pandemics) by identifying risks in advance and establishing response protocols.
Competitive Advantage and Market Differentiation
To Gain a Competitive Edge: Organisations that proactively manage operational risks are often seen as more reliable and resilient, which can provide a competitive advantage in the marketplace. An ORM framework can help position the organisation as a leader in risk management.
To Meet Client and Partner Requirements: In some industries, clients or partners may require organisations to demonstrate their risk management capabilities before entering into business agreements. Implementing a recognised ORM framework can help meet these requirements.
Board and Stakeholder Assurance
Supporting Oversight and Accountability: Operational risk management delivers visibility that boards require to fulfil their oversight duties. By providing transparent reporting, escalation discipline, and measurable resilience metrics, ORM strengthens the board’s ability to evaluate assurance across critical services and regulatory commitments.
Building Confidence and Trust: Clear ORM governance demonstrates integrity and readiness to external stakeholders incl. regulators, investors, and clients. It assures them that operational resilience is not only monitored but actively managed, turning risk oversight into a hallmark of organisational credibility.
Strategic alignment turns operational risk into foresight. When boards and CROs connect risk oversight with real-time decision-making, they strengthen resilience, protect value, and build lasting trust.
👉 Ready to review your organisation’s strategic alignment?
The Process of Operational Risk Management
Operational risk management is a continuous discipline built around four interconnected activities: identifying where risks exist, assessing their potential impact, mitigating them through effective controls, and monitoring performance to ensure assurance and accountability.When these activities operate as a single loop, they turn risk management from a compliance process into a system of foresight and resilience.
1. Identify
The first step is to identify where operational risks arise across people, processes, systems, and external dependencies. This requires looking beyond incidents to understand how vulnerabilities form in workflows, culture, data quality, or third-party relationships. Practical identification methods include process mapping, control self-assessments, scenario analysis, and data-driven scans using AI or analytics to detect emerging weak signals.
Many organisations conduct operational risk and control self-assessments (RCSAs) to evaluate how effectively controls address key operational exposures, ensuring ownership, accuracy, and continuous improvement.
Clear ownership at this stage is essential. Each function or service owner should understand the operational exposures within their area and escalate early where dependencies cross boundaries.
2. Assess
Once identified, risks must be assessed for their potential impact and likelihood both individually and in combination. Effective assessment balances quantitative data (loss metrics, incident frequency, key risk indicators) with qualitative judgment (culture, behavioural patterns, control maturity). Modern ORM practices incorporate scenario testing and resilience analysis to understand how simultaneous events or system dependencies could amplify impact.
Assessment should always link to the organisation’s risk appetite and risk capacity, allowing leadership to determine whether existing exposures remain within acceptable limits and to prioritise actions where tolerances may be breached.
3. Mitigate
The third step is to mitigate identified risks through appropriate controls, process improvements, and accountability measures. Control design should be pragmatic focusing on removing duplication and assurance where it adds value. In 2025, many organisations are embracing control rationalisation and automation to improve speed and reduce error rates without adding bureaucracy.
Mitigation extends beyond internal fixes. It includes engaging third-parties, refining governance structures, enhancing staff capability, and embedding behavioural expectations that reduce risk at source. Testing mitigation through crisis simulation or scenario exercises ensures that controls are effective under stress, not just documented.
4. Monitor
The final step is to monitor how effectively controls, processes, and behaviours sustain performance over time. Monitoring provides the feedback loop that turns ORM into a living system tracking emerging issues, validating control performance, and escalating where thresholds are breached.
Continuous monitoring increasingly relies on real-time analytics, dashboards, and automated alerts to capture data across incidents, near misses, and resilience indicators. Integrating these insights with board reporting and assurance cycles allows leadership to test whether operational risk management truly supports strategic execution, not just compliance reporting.
Who is responsible for ORM?
Managing operational risk is a shared responsibility that depends on clear ownership, transparent communication, and leadership behaviour that supports challenge and escalation. While frameworks define structure, effective management relies on how people act within it, how decisions are made, controls are owned, and signals are surfaced before they become failures.
Ownership and Accountability
Every individual contributes to managing operational risk. Frontline teams own the processes, controls, and decisions that determine performance. They are the first to detect when something is not working as intended and their visibility is critical to resilience. The role of the risk and compliance function is to provide oversight, challenge, and support, ensuring that operational risk is managed consistently and within defined appetites. Internal audit provides independent assurance that both oversight and ownership operate effectively.
This alignment reflects the Three Lines Model, where:
First line owns and manages risk within business operations.
Second line oversees and challenges risk management effectiveness.
Third line provides independent assurance to the board.
Leadership and Culture
Ownership is reinforced by culture. Leaders set the tone by responding constructively to early warnings, rewarding transparency, and addressing control failures without blame. When psychological safety is present, teams surface issues faster and make better decisions under pressure. Without it, silence and delay allow operational fragility to build unseen.
Senior leaders, from the board to functional heads, play a pivotal role in embedding this culture. They ensure risk ownership remains visible, escalation routes are trusted, and behaviours align with the organisation’s appetite and values.
Governance Integration
Operational risk management functions best when accountability and governance are connected. Ownership at every level must align with defined thresholds, reporting channels, and assurance cycles. These mechanisms ensure that escalation flows to the right level of authority, reinforcing confidence that operational risks are recognised, discussed, and acted upon.
The Risk Within provides a roadmap for embedding psychological safety into risk management. It identifies critical touch points across the risk lifecycle and offers clear actions to align leadership, culture, and governance. It is designed to help risk functions integrate more deeply into the business and strengthen decision-making at every level.
What are the key challenges in Operational Risk Management?
Even well-designed frameworks fail if daily behaviours, data visibility, and accountability are weak. The most common challenges arise not from the absence of tools, but from how they are used and supported in practice:
Diffuse ownership. When too many stakeholders share responsibility, accountability blurs and escalation slows. Clear process ownership and defined decision rights prevent issues from drifting unresolved.
Data fragmentation. Inconsistent risk data across functions prevents early insight. Without a unified view of incidents, indicators, and control performance, organisations react to symptoms rather than causes. For reference,~70% banks still face time-consuming manual risk processes, a signal that data fragmentation remains the practical blocker to foresight (see Banking on growth, but challenged to manage risks in a new coordinated way by PWC)
Cultural resistance. Teams often see ORM as administrative rather than value-adding. Without leadership advocacy and psychological safety, people hide near misses instead of surfacing them.
Over-engineered controls. Excessive process layering creates fatigue and erodes engagement. Simplicity, not volume, defines an effective control environment.
Reactive focus. Organisations sometimes respond only after incidents. Mature ORM operates continuously, analysing weak signals to anticipate disruption.
Limited integration with decision-making. When ORM operates outside strategic planning or change management, its insights fail to influence key choices or resource allocation.
Best Practices for Effective ORM
Sustained success in managing operational risk depends on leadership discipline, cultural reinforcement, and a focus on learning. The following practices differentiate organisations where ORM delivers measurable value:
Anchor ownership. Ensure risk ownership is visible and aligned to specific services or functions. Define clear escalation thresholds and empower first-line decision-making.
Simplify the system. Remove redundant controls and streamline assessments. Quality of insight outweighs quantity of documentation.
Embed psychological safety. Encourage open discussion of errors and near misses without fear of blame. Constructive transparency builds stronger risk signals and faster recovery.
Leverage data for foresight. Integrate incident data, risk indicators, and performance metrics into a unified view. Analytics and AI-assisted monitoring reveal emerging vulnerabilities early.
Connect ORM to performance. Tie risk insights to KPIs, resource allocation, and strategic objectives. Operational risk becomes meaningful when it informs how success is measured.
Continuously test and learn. Scenario testing, post-incident reviews, and resilience exercises should feed directly into control improvement and leadership dialogue.
Linking Operational Risk Management to Risk Appetite and Capacity
Operational risk management only creates value when it connects to the organisation’s risk appetite and capacity translating front-line activity into board-level assurance. Appetite defines how much risk the organisation is willing to accept in pursuit of its objectives; capacity defines how much it can realistically absorb before control, service, or financial resilience is compromised. ORM provides the visibility needed to manage the space between the two.
In our client work, this remains one of the most persistent gaps: risk appetite frameworks are often disconnected from strategy. Many organisations define risk appetite through generic qualitative statements, separate from how decisions are made, resources allocated, or trade-offs assessed.
As a result, operational risks are managed reactively, and appetite metrics become a compliance exercise rather than a leadership tool.
Closing this gap requires deliberate alignment between appetite, capacity, and strategy:
Strategic anchoring. Appetite must be expressed in terms of strategic objectives such as growth, innovation, or service reliability, with thresholds linked to the resources and resilience the organisation is prepared to commit.
Defined escalation thresholds. Tolerance limits and key risk indicators should reflect the organisation’s capacity to absorb disruption, not just regulatory expectations. Escalation must occur before appetite is breached, enabling leadership to act early.
Cascaded ownership. Appetite must cascade through the organisation in a way that shapes decision-making. Operational teams should understand how their control limits and performance targets align with board-approved appetites.
Dynamic governance feedback. ORM data and incident trends should inform appetite reviews, showing whether ambition and resilience remain aligned. When thresholds are persistently approached or exceeded, boards can reassess priorities or capacity investments.
In mature organisations, appetite and ORM operate as a continuous governance loop: board-defined limits shape operational execution, and operational insights refine strategic risk tolerance. Where these connections are weak, organisations may appear well governed on paper but lack the ability to detect, or challenge, when strategic ambition exceeds operational capacity.
Resilience is the proof of good risk management. When strategy, governance, and culture work together, organisations build the adaptability and confidence that define operational strength.
👉 Ready to strengthen your operational resilience?
Technology and Data Enablement in Operational Risk Management
Technology and data now underpin how operational risk is managed, reported, and governed. What once relied on static reporting and manual controls is evolving into a continuous assurance environment, where automation, analytics, and digital resilience tools provide real-time visibility of performance and risk. This transformation is not about replacing judgment but enhancing it turning information into foresight and confidence.
For many organisations, the opportunity lies not in buying new tools but in connecting the data that already exists. Risk, control, incident, and resilience information often sit in different systems and formats, preventing leadership from seeing how operational events interact or compound. Integrating these data sources allows CROs to move from fragmented, backward-looking reports to a live view of exposure, capacity, and emerging stress points.
Key enablers of data-driven operational risk management include:
Unified risk data architecture. Establishing a single taxonomy and data model across risk, control, and incident systems enables consistent aggregation and interpretation essential for appetite tracking and board reporting.
AI and analytics for early detection. Machine learning models and natural language analysis can identify weak signals, recurring patterns, and anomalies that traditional monitoring misses. These insights support proactive mitigation rather than reactive escalation.
Automation of control testing and monitoring. Continuous control validation through automated scripts, robotic process monitoring, or digital twin simulations reduces manual effort and provides assurance that controls perform under stress.
Resilience and scenario modelling. Integrated data allows organisations to test capacity dynamically simulating disruption scenarios and assessing whether impact tolerances can be maintained.
Data visualisation and board reporting. Dashboards that combine operational and strategic indicators enable leadership to see not just what happened, but what is likely to happen next transforming risk reporting into a decision-making tool.
Modern ORM systems therefore become connective tissue across the organisation: they align data, behaviour, and governance. When technology and analytics are embedded within the ORM discipline, they make risk appetite measurable, resilience observable, and assurance credible, the three outcomes every CRO seeks.
Operational Risk Metrics That Drive Board Insight
Operational risk metrics exist in abundance, but only a small subset informs real decision-making. Boards and executive teams do not need operational detail; they need assurance that the organisation can continue to deliver on its strategy within its defined risk appetite and capacity. The value of ORM metrics lies not in volume, but in clarity, relevance, and connection to strategic objectives.
An effective reporting set for the board combines leading, lagging, and resilience indicators, framed through the lens of risk appetite and performance outcomes.
1. Leading Indicators; Early Signals
These metrics anticipate where operational risk could emerge before an incident occurs. They translate behavioural, cultural, and control performance into foresight:
Control effectiveness and testing coverage: % of critical controls independently validated or tested through automation.
Escalation timeliness: average time between risk identification and first management response.
Change stress metrics: number of concurrent major projects or change initiatives affecting critical processes.
Third-party dependency concentration: percentage of key services dependent on a single vendor or cloud provider.
Staff sentiment and culture indicators: pulse survey results on escalation comfort, workload, or clarity of accountability.
2. Lagging Indicators; Performance and Loss
Lagging metrics measure realised exposure and the consequences of operational risk events. They help the board assess whether risk appetite and tolerance levels are being breached:
Operational loss events: frequency, severity, and cumulative financial impact compared with thresholds.
Near misses: reported but contained events, often a proxy for cultural openness and control maturity.
Compliance or audit findings: outstanding actions, recurrence rate, and closure velocity.
Incident duration and recovery time: average time to restore critical services following disruption.
Regulatory interactions: supervisory findings, thematic reviews, or enforcement trends.
3. Resilience and Capacity Metrics: What Sustains Delivery
These indicators test whether the organisation can sustain performance under stress. They connect ORM directly to business continuity and impact tolerance, the language now shaping regulatory and investor scrutiny:
Service impact tolerances: whether critical services operate within defined recovery limits.
Scenario test outcomes:performance of systems, teams, and suppliers under simulated disruptions.
Capacity utilisation: workload, system, or staff strain relative to established limits.
Automation dependency ratio: percentage of critical activities dependent on automated systems or AI models.
Supplier resilience maturity: assessment of key vendors’ continuity and response capabilities.
Using Metrics for Governance Insight
Metrics only drive value when they inform action. Boards should view ORM dashboards as dynamic assurance tools. The discussion should focus on what the metrics say about resilience, behaviour, and capacity rather than the numbers themselves. Patterns of escalation, recurring near misses, or tolerance breaches reveal how effectively the organisation learns and adapts.
Operational Risk Maturity Pathways
Operational risk management evolves as organisations mature from reactive control environments to integrated systems of assurance and foresight.
Understanding this progression helps CROs position their function not only as a compliance necessity, but as a strategic capability that supports performance, culture, and resilience.
The following model summarises four typical stages of ORM maturity observed across industries:
Maturity Stage | Characteristics | Typical Outcomes | CRO Priority |
1. Reactive (Incident-Driven) | Risk activity is triggered by events and audit findings. Controls are local, manual, and inconsistently applied. Reporting focuses on loss capture rather than prevention. | Fragmented visibility, recurring issues, limited accountability. | Establish visibility, define ownership, and stabilise control baseline. |
2. Structured (Framework-Defined) | Policies, taxonomies, and reporting are formalised. ORM processes (RCSA, incidents, KRIs) are in place but operate in silos. Compliance and audit confidence improve, but strategic integration is limited. | Consistent processes, basic oversight, but reactive culture persists. | Strengthen challenge, connect ORM to strategy, and integrate data. |
3. Integrated (Insight-Driven) | ORM activities are connected across functions. Data, resilience testing, and risk appetite are aligned. Leadership uses operational insights in decision-making and resource planning. | Predictive risk visibility, cross-functional ownership, stronger culture. | Embed continuous monitoring, link metrics to performance, and drive learning. |
4. Strategic (Capability-Led) | ORM is embedded within strategy, culture, and governance. Board decisions balance ambition with capacity and resilience. AI and analytics enable proactive assurance. ORM performance influences reputation and investor confidence. | Agile, resilient organisation with transparent governance and adaptive culture. | Maintain foresight, align ORM with emerging risks, and sustain culture of trust. |
Using Maturity to Drive Progress
Maturity is not about scorecards but about direction of travel. For CROs, the goal is to help the organisation move steadily from structured compliance toward strategic integration where operational risk informs planning, investment, and performance discussions. Progress depends as much on leadership behaviour and collaboration as on frameworks or technology.
Leadership Enablers of Effective Operational Risk Management
The success of operational risk management depends less on systems and frameworks than on leadership behaviour. CROs and executives shape how people perceive risk whether it is seen as a shared responsibility or a barrier to progress. Effective leaders create the conditions that allow operational risk management to deliver insight, assurance, and trust.
Key leadership enablers include:
Visible ownership. Executives model accountability by treating operational risk as integral to performance, not as a delegated compliance function.
Constructive challenge. Leaders invite scrutiny, question assumptions, and encourage escalation without fear of blame. Psychological safety ensures that weak signals are surfaced before they become incidents.
Clarity of direction. Leadership connects ORM objectives to strategy and values, showing how risk decisions support ambition rather than constrain it.
Consistent reinforcement. Regular dialogue about risk in performance reviews, planning sessions, and board meetings reinforces that managing risk is part of how the organisation succeeds.
Leadership behaviour determines whether operational risk management is experienced as bureaucracy or as a system of trust and enablement.
Emerging Directions in Operational Risk Management
Operational risk is entering a new phase: one defined less by compliance and more by connected intelligence, resilience, and ethical governance.As digital ecosystems expand and business models evolve, CROs face an environment where risk boundaries blur, accountability extends beyond the organisation, and foresight becomes a competitive advantage.
Several shifts are shaping this new landscape:
AI and model governance. Automation is transforming how organisations operate and how risks propagate. CROs must ensure algorithmic decisions remain explainable, auditable, and aligned with ethical standards.
Ecosystem and fourth-party risk. Dependencies now extend across shared data platforms, fintech partnerships, and global supply networks. Managing resilience requires transparency deep into the value chain, not just first-tier oversight.
Data ethics and integrity. With greater reliance on analytics and AI, data governance has become both a control function and a trust mechanism. Boards increasingly treat data integrity as a core element of operational resilience.
Integration of resilience and ORM. Regulators are converging resilience, risk, and change management requirements. Mature organisations now design unified frameworks that test impact tolerance, response agility, and governance in tandem.
Human capability and adaptive culture. The pace of change demands cultures that learn faster than disruption unfolds. Psychological safety, learning loops, and behavioural insight will continue to define operational resilience more than any system or model.
Operational risk management is thus evolving from measurement to intelligence: a forward-facing capability that connects data, culture, and governance to sustain performance under uncertainty. CROs who lead this transition will redefine operational risk not as a defence function, but as a strategic enabler of trust and transformation.
Conclusion
Operational risk management is not a framework to maintain, but a discipline to practise. Its effectiveness depends on how clearly ownership is defined, how openly issues are surfaced, and how consistently leadership connects operational reality to strategic intent.
When risk appetite, technology, and culture operate in concert, operational risk management becomes a system of strategic alignment and foresight. It enables leaders to see where ambition may exceed capacity, where resilience can be strengthened, and where decisions can create enduring value rather than fragility.
For CROs and executives, the challenge is to build organisations where operational risk management is lived: embedded in every decision, conversation, and performance goal. Those who achieve this move beyond compliance to create something much more powerful: trust that endures through change.
About the Author: Julien Haye
Managing Director of Aevitium LTD and former Chief Risk Officer with over 26 years of experience in global financial services and non-profit organisations. Known for his pragmatic, people-first approach, Julien specialises in transforming risk and compliance into strategic enablers. He is the author of The Risk Within: Cultivating Psychological Safety for Strategic Decision-Making and hosts the RiskMasters podcast, where he shares insights from risk leaders and change makers.