Operational Risk Management

Introduction: What is Operational Risk Management?

Operational Risk Management (ORM) is the daily defense mechanism of a business. If strategic risks concern "where we are going," operational risks concern "how we are getting there and what might break along the way." It is the risk of loss resulting from inadequate or failed internal processes, human errors, system failures, or external events. In Georgia, where businesses often depend on specific personnel or IT infrastructure, operational failures (e.g., fraud, data loss, violation of safety norms) often become the cause of financial crises. The ORM service involves implementing control systems that minimize the "human factor" and technical glitches.

What Does This Service Cover?

Operational risk management is a practical and detail-oriented service:

• Creating Internal Control Systems: Outlining procedures that rule out sole decision-making on critical issues (the "four-eyes principle").
• Fraud Prevention: Implementing anti-corruption policies and conflict of interest management mechanisms.
• IT and Cyber Risk Management: Legal regulation of data backups and access rights.
• HR Risk Management: Setting up systems for employment contracts, disciplinary liability, and material liability.
• Outsourcing Control: Assessing risks of third parties (suppliers, service providers) and creating a strict contractual framework (SLA) with them.

Common Real-World Scenarios

Operational risks manifest at the most unexpected moments:

• Accounting Error or Embezzlement: Due to a lack of controls in the finance department, an employee embezzles funds or makes a systemic error, leading to a tax fine.
• Server Crash: Breakdown of IT infrastructure resulting in halted customer service and reputational damage. Pre-defined responsibilities are needed.
• Industrial Incident: Violation of safety rules in a warehouse leading to employee injury and suspension of company activities by the Labor Inspectorate.
• Loss of Confidential Information: An employee leaves the job and takes the client database because there were no access restrictions on information.
• Supplier Error: A subcontractor fails to fulfill an obligation, stopping the entire production chain.

Georgian Legal Framework

Operational risk management relies on sectoral legislation. For labor risks, the Labor Code of Georgia and the Law "On Occupational Safety" are paramount, obliging employers to create a safe environment. For data protection and IT risks, the Law "On Personal Data Protection" is used. For the prevention of financial crimes, the Law "On Facilitating the Prevention of Money Laundering and Terrorism Financing" is important. For banking and payment systems, the National Bank has a special Regulation on Operational Risk Management, which is mandatory for compliance.

Service Process

Implementing an ORM system includes:

1. Process Mapping: Visualizing business processes and marking "danger points."
2. Incident History Analysis: Studying past errors to prevent recurrence.
3. Developing Control Mechanisms: Creating policies, instructions, and checklists for employees.
4. Key Risk Indicators (KRIs): Setting indicators that signal an impending problem (e.g., increased staff turnover).
5. Audit and Testing: Periodic checking of the system's effectiveness.

Why Use Legal.ge?

Operational risk management requires attention to detail and practical experience. On Legal.ge, you will find specialists who can turn "paper laws" into real, working instructions for your staff. Reduce the number of errors and increase business efficiency with the help of qualified advisors. Find them on our platform.