| The term Operational Risk Management (ORM) is not | | | | reporting of those losses, affect virtually all areas of |
| new. It has been tossed about in businesses across | | | | every business each and every day. Therefore, it is |
| North America for the last several years. ORM and | | | | in each company's best interest to simultaneously find |
| the oft associated term Enterprise Risk Management | | | | ways to cut losses while keeping regulatory |
| (ERM) have generally been used as corporate | | | | compliance costs down. Hence the rebirth of |
| buzzwords, business culture idioms referenced in | | | | Operational Risk Management/Enterprise Risk |
| board meetings and articulated during presentations. | | | | Management and the new demand for Risk |
| Recent developments, such as the creation of the | | | | Management software solutions. |
| Sarbanes-Oxley (SOX) Act in 2002 in response to | | | | Traditionally, few operational losses were measured in |
| growing financial scandals in the U.S., have brought | | | | any accounting system, and rarely were the loss |
| Operational Risk Management, Enterprise Risk | | | | incidents tracked and analyzed in any way; the time |
| Management and related concepts from the | | | | and paperwork required to do so was simply |
| backrooms to the forefront of corporate America. | | | | daunting. Because there was no standard legislation in |
| The inescapable reality is that every single day | | | | place, any Risk Management software tools were |
| businesses incur losses and experience operational | | | | often proprietary and slightly more than electronic log |
| disruptions due to failures by employees, incorrect | | | | books at best. New technologies and attitudes have |
| implementation of processes and technologies as well | | | | allowed loss incidents to be seen as more predictable |
| as wilful disobedience to internal controls. These | | | | and able to be grouped into risk categories. Proper |
| losses may be manifest in the form of uncollectible | | | | analysis of these incidents can result in attribution to |
| receivables from disappointed clients, lost sales due | | | | root causes which aids in mitigation. Even this |
| to call centre failures or unproductive employee | | | | beginning leads to dramatically reduced costs while |
| downtime when computer systems are unavailable, | | | | achieving huge gains and strategic advantages from |
| or a host of other potential problems. While most | | | | well crafted Operational Risk Management policies and |
| businesses have developed ad hoc methods of | | | | Enterprise Risk Management procedures. |
| dealing with such losses in the past, legislation (such | | | | Changes in legislation, technology and attitudes |
| as SOX and the Basel Accord) has made | | | | related to ORM/ERM have produced not just |
| standardized compliance procedures much more | | | | economic gains, they have led directly to |
| complex. Thankfully, just as these new rules have | | | | re-invigorated business innovation and even created |
| given rise to increased awareness of ORM/ERM, new | | | | improvements in the quality of life. For example, |
| tools (including Risk Management software) have | | | | safety, quality and environmental related loss |
| been developed to aid compliance efforts. | | | | incidents have proven to be not only manageable and |
| The new regime of Sarbanes-Oxley, under the | | | | avoidable, but sound management of these issues |
| direction of the Public Company Accounting Oversight | | | | has conferred greater advantage on those who |
| Board (PCAOB) which is in turn accountable to the | | | | succeeded while driving many who did not adapt out |
| Security and Exchange Commission (SEC), has | | | | of business. While large scale corruption may have |
| undoubtedly benefited the business world by | | | | brought about regulatory changes, these changes |
| providing a foundation from which to decrease | | | | have spurred a re-visioning of Enterprise Risk |
| corporate fraud. However, the complexity and | | | | Management. Advanced Risk Management software |
| associated technical, labour and administrative costs | | | | has allowed business to more directly mitigate losses. |
| posed to business is also considerable. The realities of | | | | This has resulted in a cleaner, more efficient and |
| both individually large and collectively mundane errors | | | | more competitive business environment. |
| resulting in loss, as well as the newly regulated | | | | |