What is operational risk management?
Operational risk management refers to the management of risks to a business’s ongoing processes (for example the risk that a production line may stop). Operational risks are easy to identify, as they often related to established business processes staffed by experienced personnel.
How are operational risks defined?
Operational risks are characterised by the frequency of occurrence (how many times a year a component is likely to fail) based on historical data.
Many organisations will also include projects under the heading of operational risk, but this is often not a good idea, as one-off projects and programmes do not have historical data, due to the “one-off” nature of the project. Operational risks which have implications for wider business strategy are escalated to strategic level.
Why is operational risk management important?
Inefficient business processes and/or supply chains will inevitably waste money, even more so if these processes break down. Most organisations rely on having good people with a clear understanding of business processes. Problems can arise if these processes are new or complex, if a key member of the team leaves, or if the specific competencies of a team are in doubt.
Businesses will often respond to situations like this by instigating some generic operational risk management process. These may be simple or sometimes quite complex, but they all tend to suffer from the same problem – they are all reactive rather than pro-active.
How does “traditional” operational risk management fail?
Traditional risk processes tend to fail for any of the following reasons:
- Generic risk statements that communicate very little.
- Over-analysis – using unsubstantiated quantified data.
- Under-analysis – using misleading HML type scales.
- Distractions arising from inappropriate prioritisation
- Inability to get team members or employees to act on risks before they become major issues.
How De-Risk can help you
The De-RISK ABCD risk management process works by identifying, analysing and managing the underlying assumptions in any business process. Our approach brings with it a number of benefits:
- Assumptions focus people into thinking ahead and therefore potential problems are anticipated rather than ignored.
- Assumptions are at the root of any risk, and are therefore easier to manage than symptoms.
- Uses meaningful analysis that provides true insight into how the team perceives business processes.
- Provides clear prioritisation at all levels in the business, as well as clear routes for risk escalation.
- Ensures follow through on actions via a simple but effective governance structures and processes.