What does "risk assessment" involve in ORM?

Risk assessment in Operational Risk Management (ORM) is a critical process that focuses on identifying potential risks and prioritizing them based on their severity and likelihood of occurrence. This proactive approach enables organizations to understand the various types of risks they may face, allowing them to allocate resources effectively and implement appropriate risk management strategies.

The core components of risk assessment include identifying risks across various domains, evaluating the potential impact and probability of these risks, and ranking them to determine which ones require immediate attention and mitigation strategies. This systematic approach is essential for developing effective risk management protocols that enhance organizational resilience and decision-making.

In contrast, attempting to eliminate all risks is unrealistic, as some level of risk is inherent in any business activity. Evaluating only financial risks neglects other critical aspects such as operational, reputational, and compliance risks, which are also vital to consider. Lastly, monitoring risks exclusively after they occur does not provide a preventative framework, which is necessary for effective risk management. Thus, the focus of risk assessment on identification and prioritization is crucial for maintaining an organization's operational integrity and stability.