Why comparing risk practices with peers matters in operational risk management

Why is benchmarking significant in operational risk management?

• A. It reduces operational costs
• B. It compares risk management practices with competitors
• C. It eliminates the need for audits
• D. It verifies compliance with regulations

Answer: (B)

Benchmarking plays a crucial role in operational risk management primarily because it allows organizations to compare their risk management practices against those of competitors or industry standards. This comparison can help identify areas for improvement, highlight best practices, and foster a culture of continuous enhancement in risk management strategies. By understanding how similar organizations manage their risks, a company can adopt strategies that have been proven effective, address any gaps in their own practices, and ultimately strengthen their operational resilience. Through this process, organizations gain insights into industry trends, enabling them to gauge their own performance relative to peers and adapt accordingly. This comparison is essential for staying competitive and ensuring that the organization remains aligned with industry benchmarks and standards for operational risk management. In contrast, while reducing operational costs and complying with regulations are important aspects of business management, they are not the primary focus of benchmarking. Additionally, audits serve a different function in verifying compliance and assessing the effectiveness of operational controls, and benchmarking does not eliminate the necessity for these audits. Thus, the significance of benchmarking in operational risk management is best encapsulated through its comparative nature, which drives improvement and strategic alignment.

Outline (brief)

• Opening: Why comparing risk practices to peers matters in operational risk management (ORM)

• What it really means: a practical definition using terms like yardstick, industry norms, and peer performance

• Why it matters: four core benefits—spot gaps, learn proven approaches, drive steady improvement, and stay competitive

• How to do it well: practical steps—scope, select peers, gather data, normalize, analyze gaps, plan improvements, and track progress

• Common pitfalls and how to avoid them

• Tools, frameworks, and resources you can lean on

• Real-world analogies to keep it relatable

• Close: a reminder that the best ORM grows from thoughtful comparison, not just compliance

Why comparing risk practices matters in ORM

Let me explain something simple: operational risk management isn’t a solo sport. If you only look inward, you might miss the smarter plays happening elsewhere. So, you look around. You compare how you handle risk with what others—peers in your industry, or firms of similar size and complexity—are doing. That comparison becomes a compass. It points you toward stronger controls, faster detection of issues, and smarter responses when something goes wrong. It’s not about chasing what others do for the sake of replication; it’s about learning what works in practice and adapting it to your own setup.

What “comparing practices” means in the real world

In ORM, a practical comparison isn’t a list of numbers you stamp on a wall. It’s a way to gauge your risk governance against a reasonable standard:

• How you identify risks compares with how others spot emerging threats—do you use the same KRIs (key risk indicators), or do you rely on older signals that miss a trend?

• How you assess controls stacks up against how peers test them—are you running the same control tests, with similar frequency, and are you catching gaps as quickly?

• How you respond to incidents stacks against peer practices—do you have playbooks that resemble those used in the market, and do your response times reflect best-in-class benchmarks?

• How you govern risk appetite aligns with what others tolerate in practice—are your thresholds realistic given real-world performance, or overly cautious or too lax?

Think of it as a yardstick you can trust. You’re not copying a copy; you’re calibrating your own process using a standard that’s proven in the field. That’s where the value hides—in the practical, actionable insights you gain when you see how others handle similar risk landscapes.

Why this matters so much

Here are the four big reasons to embrace this kind of comparison:

• Spot gaps before they bite you: you’ll notice weak spots in your risk identification, assessment, or monitoring that you might otherwise overlook.

• Learn proven approaches: some peers have already cracked tricky issues—maybe they’ve structured their risk reviews differently, or they’ve adopted a data visualization method that clarifies complex risk patterns. You can borrow those ideas and adapt them.

• Drive steady improvement: comparison fuels a culture of ongoing improvement. It shifts risk work from checkbox activity to purposeful, measured evolution.

• Stay competitive and compliant in practice: you aren’t just keeping up with regulators; you’re staying in step with what the market expects from strong risk governance. That’s how resilience is built.

How to do it well: a practical, no-nonsense roadmap

1. Define the scope

Start with a focused question: which areas of ORM will you compare? Perhaps risk identification in a specific business line, the speed of incident detection, or the effectiveness of control testing. Keeping scope tight helps you get meaningful, actionable insights.

2. Choose peers and standards

Pick a mix: direct competitors, close industry peers, and organizations that have a reputation for solid risk management. You can also compare against widely recognized standards or frameworks—ISO 31000, COSO ERM, or industry guidance from your sector. The goal isn’t to copy someone else blindly but to understand where practices converge and where they diverge.

3. Gather reliable data

Quality trumps quantity. Collect data from your own systems and, where possible, from public reports, regulatory disclosures, and peer disclosures (where appropriate). Be mindful of differences in scale, product mix, and regulatory constraints that might color the numbers. Normalize where you can—adjust for factors that could skew apples-to-apples comparisons.

4. Analyze gaps with intent

Turn the data into insights. Where are your KRIs less predictive, where do your control tests underperform, and where is your incident response slower than peers? Don’t stop at the who; ask the why. What processes, data sources, or governance hurdles are contributing to the gap?

5. Prioritize improvements

Not every gap needs equal attention. Use a practical risk-based lens: which gaps pose the highest residual risk, and which fixes are reasonably quick wins? Build a plan with clear owners, deadlines, and measurable milestones.

6. Monitor progress and re-check

Comparison isn’t a one-off exercise. Schedule periodic reviews—quarterly or semi-annual—and re-run the same lens. That rhythm keeps the organization honest about where it stands and keeps momentum behind your risk initiatives.

Common pitfalls to sidestep (and how to avoid them)

• Cherry-picking data to look good: it’s tempting to show only favorable results. Resist it. A truthful, balanced view strengthens your plan and earns stakeholder trust.

• Comparing apples to oranges: ensure peers share similar risk profiles and regulatory environments. If not, adjust the comparison or use multiple peer groups to balance the view.

• Relying on a single metric: combine KRIs with qualitative insights from control assessments and incident learnings. Numbers tell part of the story; stories fill the gaps.

• Treating the result as a final verdict: use the findings as a trigger for learning, not a finish line. The goal is continuous improvement, not a trophy for the wall.

Practical tools and resources you can lean on

• Frameworks and standards: ISO 31000, COSO ERM. These aren’t checklists; they’re thinking tools that help you structure risk discussions and decision-making.

• Risk and compliance platforms: GRC tools like RSA Archer, MetricStream, and SAP GRC can centralize data, standardize metrics, and support cross-functional reporting.

• Key risk indicators and control testing methods: adopting standardized KRIs and regular control self-assessments helps align your data with peers.

• Industry insights: annual risk surveys, sector reports, and think-pieces from consulting firms offer benchmarks and context. Use them to frame your own findings rather than to chase a moving target.

• Data visualization and analytics: dashboards that reveal trends over time help you spot when a practice is improving or slipping relative to peers.

A couple of tangible, relatable analogies

• Fitness trackers for business risk: just like how runners compare pace and heart rate against a training plan, ORM teams compare risk signals and response times against peers. Seeing where you lag prompts a targeted workout—maybe you need faster incident triage or more frequent risk reviews.

• Car maintenance by routine checks: you don’t wait for a break-down to test your car’s systems. In the same way, regular cross-peer checks—on controls, tests, and reporting cadence—help you catch wear and tear before it leads to a costly failure.

A nod to the practical mindset

Let’s keep the tone practical. This isn’t about chasing trends or copying others blindly; it’s about harvesting lessons that work in real life. The spirit is curiosity with discipline: ask questions, collect honest data, and move forward with a plan that reflects your unique risks and business context.

Incorporating this approach into your ORM discipline

If you’re building a strong ORM practice, make comparison a regular habit. Invite risk owners to review peer insights in steering committee meetings. Use those conversations to shape risk appetite discussions, improve risk reporting, and refine control testing strategies. When you frame learning as a shared goal—how can we do better next quarter?—you turn a potentially abstract concept into something concrete and motivating.

A quick thought to carry forward

Here’s the bottom line: comparing how you manage risk with how others in your space do it isn’t a vanity exercise. It’s a practical, disciplined way to surface gaps, adopt proven approaches, and steadily raise the bar on resilience. The right comparison translates into clearer decisions, stronger controls, and a more confident path through uncertainty.

If you’re exploring ORM in depth, think of it as building a stable, adaptable risk ecosystem. You don’t need to reinvent the wheel every time. You need to know what the wheel does well elsewhere, then tune it to fit your own road. That’s the essence of using a real-world yardstick in operational risk management—a thoughtful, ongoing pursuit that makes organizations tougher, smarter, and—not to get overly dramatic—more human in the face of risk.