Operational Risk Management Framework

An operational risk management framework establishes the governance, policies, processes, and tools necessary to manage losses from failed internal processes, human errors, system failures, or external disruptions. It typically includes risk identification mechanisms, loss event databases, key risk indicators, scenario analysis, and three lines of defense accountability structures. Under Basel III, banks must maintain capital reserves proportional to operational risk exposure measured through standardized or advanced measurement approaches. A global manufacturer might implement an operational risk framework that tracks production line failures, supply disruptions, and safety incidents across dozens of facilities. The framework enables proactive risk mitigation and informed capital allocation decisions.