Tips For Employers To Master Operational Risk Management

No matter how big or small, every business faces a certain level of risk. When it comes to operational risk, employers need to be especially diligent to protect their employees, customers, and bottom line. This guide will outline some essential tips for employers to master operational risk. By following these tips, you can help keep your business running smoothly and minimize the chances of any costly disruptions.

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Understanding Operational Risk

Operational risk is the risk of loss that arises from inadequate or failed internal processes, people, and systems or from external events. This type of risk can come from various sources, including human error, natural disasters, cyber-attacks, and more.

As an employer, it's important to understand what operational risk is and how it can affect your business. By being aware of your business's potential risks, you can be better prepared to mitigate them.

Operational risk is often divided into seven categories:

Safety Risk

Safety risk can be described as the potential for an event that could lead to loss of life or injury to personnel. For example, if an employee is working on a piece of
machinery that is not properly safety guarded, there is a safety risk.

Health Risk

Health risk can be described as the potential for an event that could lead to ill health. For example, there is a health risk if an employee is exposed to hazardous chemicals.

Environmental Risk

Environmental risk can be described as the potential for an event that could lead to pollution or damage to the environment. For example, if a factory emits harmful gasses into the atmosphere, there is an environmental risk.

Legal Risk

Legal risk can be described as the potential for an event that could lead to legal action being taken against the company or its employees. For example, there is a legal risk if an employee breaks the law on duty.

Reputational Risk

Reputational risk can be described as the potential for an event that could damage the company's reputation. For example, if an employee gets into a violent fight outside of work while representing the company, there is a reputational risk.

Financial Risk

Financial risk can be described as the potential for an event that could lead to financial loss. For example, if an employee halts production illegally, there is a financial risk.

Social Risk

Social risk can be described as the potential for an event that could lead to social unrest. For example, if a company is found to be polluting a local water supply, there is a social risk.

Design A Operational Risk Management System

After you have identified the types of operational risk your company faces, you need to design a system to manage these risks. This system should be tailored specifically to your business and its needs.

When designing your operational risk management system, there are a few key elements you will need to consider:

Risk appetite – This is the amount of risk your company is willing to take on.

Risk tolerance – This is the level of risk your company is comfortable with.

Risk capacity – This is the amount of risk your company can handle.

Risk management policies and procedures – These guidelines will govern how you manage operational risk within your business.

Risk management tools and techniques – These are the methods you will use to identify, assess, and mitigate operational risk. 

Once you have considered these elements, you can begin to design your operational risk management system. Operational risk management systems can vary greatly in complexity. The key is to find the right system for your business and its needs.

Train Employees On How To Manage Risks In Their Roles

After you have designed your operational risk management system, you need to train your employees to manage risks in their roles. This training should cover the following topics:

  • How to identify operational risk.
  • How to assess operational risk.
  • How to mitigate operational risk.
  • How to report operational risk.

By training your employees on managing operational risks, you can ensure that they are aware of the potential risks and know how to handle them properly.

Monitor Risk Control Measures And Make Adjustments As Needed

Once you have implemented your operational risk management system, you need to monitor the risk control measures and make adjustments as needed. This monitoring can be done regularly, such as daily, weekly, monthly, quarterly, or yearly.

Monitoring your operational risk management system will help you identify areas where improvements are needed. Additionally, it will allow you to make changes to the system as necessary to ensure that it effectively manages operational risks.

The monitoring process can help you identify where controls are lacking or insufficient. For example, by monitoring your signage requirement as per your risk assessment, you might find that slippery when wet signs are missing. This allows you to correct this before an incident happens, and the company gets a letter from slip & fall accident lawyers claiming damages.

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Leaders Should Lead From The Front And Be Role Models

Operational risk management should not be left to the employees alone. Leaders also have a role to play in managing operational risks. Leaders should lead from the front and be role models for their employees.

They should set the tone for how risks are managed within the company and ensure that all employees understand and comply with the operational risk management system. By leading from the front, leaders can show their employees that they are committed to managing operational risks and keeping the company safe.

Leaders should be seen helping and mentoring employees in the risk management system. If leaders are seen breaking the rules or taking shortcuts on risk control measures, it sets a bad example for the employees and can lead to more accidents and incidents.

Consult Teams Across The Organization For Input Into The Risk Management Process

Operational risk management is not something that should be done in a silo. To be effective, it should involve input from teams across the organization.

For example, your marketing team can help you identify potential risks associated with new product launches. Your sales team can help you identify risks associated with new customer acquisition. Your engineering team can help identify risks associated with maintenance.

By involving teams across the organization in the risk management process, you can get a more holistic view of the risks facing your business and make better decisions about mitigating those risks. Furthermore, employees who have been consulted in risk management planning and processes are more likely to comply with procedures and control measures in which they have had input.

Operational risk management is a vital part of any business. By following these tips, employers can ensure that they effectively manage operational risks within their company.

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