Many operational failures in businesses aren’t because of external shocks. Rather, they’re because of internal processes going wrong, such as missed quality checks or minor misunderstandings that pile up over time. To prevent this, it’s essential to have an operational risk management strategy in place. This helps you to control the internal risks that affect your organization’s business performance.
In this guide, you’ll learn what operational risk management means, in a practical, day-to-day context. We’ll also walk you through the key components of a strong risk management strategy so you’ll have a clearer view of how to prioritize and reduce the risks in your own operations.
What is operational risk management?
Operational risk management (ORM) is the process of identifying, assessing, and controlling risks that come up in day-to-day business operations. These aren’t the market crashes or major legal disputes that get headlines—these are the internal failures that quietly erode performance: a missed step in a safety inspection, miscommunication on the factory floor, or a broken process that goes unnoticed until it’s too late.
By practicing ORM, you’re assessing what can go wrong in your operations–and then setting measures to prevent it or otherwise respond quickly if it does. Good operational risk management improves consistency, builds trust with customers and stakeholders, and contributes to your organization smoothly. It helps teams stay compliant and learn from incidents, rather than repeating them.
In practice, ORM is involved in every part of the business, from how your team handles equipment maintenance to how you onboard new employees. Since these risks are so closely tied to human behavior and systems, managing them well comes down to standardization, as well as clear communication.
Types of operational risks
Operational risks come in many forms, but they all share one thing in common: they’re mostly internal and related to how your organization works from day to day. Here are the major types:
- Human error – Mistakes happen. Maybe an employee skips a step, or misinterprets a policy. At worst, these small missteps can become compliance violations or affect safety.
- System failures – These are when software crashes or a tool doesn’t work the way it should. The result would be delayed workflows and disruptions, possibly even causing financial loss and safety risks.
- Process breakdowns – Operational processes need to be followed consistently. If they’re unclear, outdated, or simply not enforced, this will cause inconsistency and inefficiency.
- Fraud and misconduct – Internal fraud, like manipulating data, forging signatures, or misusing company assets, is another major operational risk, damaging both operations and trust.
- External disruptions that affect operations – These external risks include supply chain disruptions, service outages, or even trade wars and political instability. While they are outside the company’s control, these risks reveal gaps in preparedness and emergency planning.
These types of risks show up in all sectors, from production and retail to hospitality and office environments. No matter the industry, organizations need to be alert and proactive about handling these risks.
Key components of operational risk management
Because operational risks are constantly present, managing them is a continuous cycle that starts with identifying the risks, then eventually reviewing how well you mitigate them. To walk you through the process, we’ve prepared some operational risk management templates that you can edit and download. They cover these key components:
Risk identification
Before you can manage risks, you have to find them. Operational risks aren’t always obvious, since they might be part of routine tasks or even layered with assumptions like “this is how we’ve always done it.” In effect, you’ll look at your operations with a critical eye and ask: Where could something go wrong?
To do this effectively, you need input from people who perform the work directly. Managers can spot high-level risks, but getting the insights of frontline workers is also important, since they’re in the best position to spot where breakdowns happen in real time.
These methods help with risk identification:
- Process walkthroughs – Map out workflows step by step. You can then see weak points, including areas that need too much manual input or where tasks are vague.
- Incident reports and past data – Look at where problems happened before, since patterns tend to repeat.
- Audits and inspections – Conduct regular checks to uncover risks in your equipment and procedures.
Risk identification should be part of your regular routines, before problems even part. Ideally, it becomes a natural part of how your organization runs.
Risk assessment
Once you’ve identified the risks, the next step is figuring out which ones need attention. After all, not every risk is urgent, and not all issues need a full-blown response. With risk assessment, you can sort through the noise and focus your time and resources where they’ll have the biggest impact.
There are two factors to consider when assessing risk:
- Likelihood – How likely is it that this risk will happen? Is it a once-a-year issue, or could it happen weekly?
- Impact – If it does happen, what’s the result? Is it minor inconvenience, or will there be a safety hazard or lost revenue?
You can use a basic risk matrix to score each risk and decide on priorities. Let’s take a look at some example risks:
- Equipment left unchecked: High likelihood and medium impact, so priority is high
- Software bug in reporting tool: Low likelihood and low impact, so priority is also low
- Missed hygiene checks: Medium likelihood and high impact, which means it’s high priority
By assessing each risk like this, you’ll be more informed with your decision-making. You can then decide what kind of changes to make and where to focus training and automation efforts.
Risk control and mitigation
This stage is where you’ll act to reduce the risks. The goal isn’t to eliminate them completely, since that’s not realistic, but rather to make your operations more predictable and less prone to disruption.
One common approach is standardizing procedures. This is especially useful in high-risk, repetitive tasks like equipment checks and safety inspections. Be specific about what employees should do for each process and document it. You can even include checklists or digital forms to make sure that there are no skipped steps.
Another option is to introduce controls. These are built-in checks that help prevent errors. For example, you might require a second approval for high-risk actions, or lock fields in a form until earlier steps are completed.
Consider training and retraining too, especially if human error is a major cause. With regular training, you can close knowledge gaps and reinforce key procedures.
You can also add automation to workflows. If something can be done automatically, it reduces the chance of human error. Automating reminders or recurring checks can create a more reliable system with less micromanagement.
Review and continuous improvement
Once controls are in place, the work doesn’t stop. Risk management is an ongoing process, and the only way to keep it effective is through regular monitoring and review. You’ll track how your processes are performing day to day, identifying where things are slipping, and make adjustments as needed.
Visibility is important here. Check if tasks are being completed on time and procedures are followed as documented. By gathering information–such as task completion rates, error trends, and inspection results–you’ll then be able to spot gaps in your strategy and refine your procedures.
To make the whole process more organized, you can download any of these pre-made operational risk management templates. They’re designed to standardize your documentation and speed up your assessment.
This creates a feedback loop: you test a solution, track the results, and improve again. Over time, it helps build a culture of adaptability and continuous improvement, which every organization benefits from.
Best practices for managing operational risks
Operational risk management involves building habits into your workflows that help prevent issues. Here are a few best practices that make a huge difference:
- Define clear responsibilities. Everyone on the team should know exactly what they’re responsible for—especially when it comes to safety checks or following procedures.
- Standardize your processes. Use checklists, templates, and SOPs (standard operating procedures) to make sure tasks are done the same way every time. This reduces variability and makes training easier.
- Improve communication. Make it easy for teams to share information, especially during handovers or across shifts. You can use shared dashboards, document updates, or even do short daily syncs.
- Encourage issue reporting and feedback. Create a culture where people can report near misses, flag problems early, and suggest improvements without fear of blame.
- Set up early-warning signals. Design your systems to flag small issues, like delays or missed steps, so you can intervene early. This works like maintenance for your operations rather than emergency repair.
Leverage software tools for managing operational risks
Managing operational risks effectively depends on having the right systems in place. Lumiform is a flexible, mobile-first software solution that helps you identify, track, and reduce operational risks. Whether you’re conducting inspections or assigning follow-up tasks, Lumiform keeps everything in one place and makes sure your processes are consistent.
You can build custom forms, automate inspections, and trigger actions based on real-time responses—all from one platform. Use AI to create risk assessment forms, or browse through our library of more than 12,000 templates. You can then assign follow-up tasks instantly, while keeping everything documented and traceable.
Your team can work from mobile or desktop, online or offline, and stay aligned across every location. The data collected feeds into clear reports and dashboards that you can easily view. This allows you to track trends and continuously improve your operations
Start your free trial today and see how Lumiform can help you take control of operational risk!