From worker decisions to ethical questions to new technology, companies face operational risk anywhere they turn.
In a nutshell, operational risk is the risk of doing business. Small issues can trigger high-risk situations and even company-wide setbacks. This kind of chain reaction that can be devastating to a company’s brand and the organization’s existence.
The maturity of risk management strategies varies by industry, but greater awareness and appreciation can be seen across executive boards, who recognize the value of identifying and managing operational risk.
To avoid a situation that could seriously impact or devastate the organization, companies should take a comprehensive approach to their operational risk profiles, risk appetite and risk tolerance. Management must develop and embrace their own risk culture and set risk-related guideline for the organization. Company leaders also have to understand, be able to articulate and prioritize risks to make good decisions.
With stakes being so high, it’s time for every company to make risk management an organizational priority and identify risk management as an essential business tool. Effective risk management steps can motivate greater risk taking and risk visibility. Well-informed management can then the make use of a risk management system to drive competitive advantage.
Risk prevention challenges
Business executives face a number of risk management challenges. First, the process can vary and be quite complicated: given recent advancements in technology, globalization and competition.
Second, the business value of risk management tactics may not be readily apparent because many companies integrate risk management in their compliance, quality or other processes.
Third, business systems and programs are disconnected. Because risk prevention mostly came about as reactive function, many companies have disjointed systems, overwrought programs and metrics that are reported due to regulations or compliance reasons.
Developing a risk prevention program
To cultivate a strong risk management program, companies should start by establishing risk management as a key business function and promote firm-wide knowledge of how the program’s aspects relate to the overall program’s value proposition.
One of the primary functions within a risk program is capturing and aggregating operational data. Businesses should also leverage technology to affect change and improvement, not simply for reporting. Technology can significantly boost risk management value to the company, management and employees.
Finally, a risk management program ought to concentrate on managing risk, not rule breaking. This program can add real business value when the emphasis is on helping the company reduce material risk exposures and expand risk-taking activity where the benefits outweigh the risks.
Any risk management program should also be positioned as a partner, not a rival to company interests. The success of a risk program is, in part, reliant on its capacity partner with other functions in the organization.
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