Operational risk management in current business trend is the monitoring and mitigation of risks that arise due to a failed process, system or a series of events. The risk and thereby loss incurred due to the failure of procedure can bear financial losses either indirectly or directly. For instance, poor customer service can indirectly hamper a company’s reputation and can lead to loss in company sales. In a volatile and complex business environment, it is imperative that a risk management leader addresses various risks that births out of operational failures stemming from both systemic and novel developments.
These risks can arise from a broad spectrum of sources, ranging from regulatory and compliance errors, technology upgrades, ambiguous geopolitical events to basic human error or unexpected events, among others. Main challenge is to ensure risk is sufficiently mitigated and addressed to the best of the organizational capability. To ensure this, management leaders need to proactively mitigate the operational risks along with its timely identification, quick assessment, all while vigilantly monitoring compounding outcomes.
Complimenting regulatory requirements with right competencies
Risks surfacing as a result of change to the existing laws and regulations affects and influences a particular business sector or the market, consequently damaging investment and altering the set plan for modus operandi of the business. Changing regulations can have a long-term effect if not catered to with the right response by people with the right competencies. This might not only increase the cost of doing business at present but also hurt the return on investments, stunting further prospects of growth curtailed by limiting profits.
Several organizations deal with the evolving and ever-growing regulations and following scrutiny to the best of their ability. Although this exposes all organizations to varying degrees of regulatory risks, some organizations perform better and get more heavily regulated than others. In this regard, climate change concerns and ensuring cyber security issues is paramount as most companies struggle with improving the skill sets required for the novel developments in these subjects. Meanwhile, risk management leaders must work efficiently linking appropriate teams in their organizations to strategize and solve these risks by fulfilling regulatory requirements. Key to the solution is addressing the shortage of staff in the required departments, meanwhile filling the gaps in skill sets and competency required for the staffing roles. High turnover rates and incoming of new work force, as employees seek new employment, often leads to a vaping gap in knowledge and skill required for the job. Meanwhile labour shortage impacts the normal functioning of any organization, disrupting the daily business. Several steps are to be placed in order to mitigate the skill gap including training programs, and ensuring proper flow of information within the organization. This information might include details about the company, position of other employees and more training about the job, competencies and skills required to do the job as well as support and tools offered by the organization.
Supply chain disruptions amidst geopolitical volatility
Geopolitical events, both small and large, dynamic or historic in nature, indirectly or directly create ripples and further disruptions for companies and organizations across globe, tampering with the existing flow of the supply chain. Supply chains can be disrupted due to high-impact events like civil wars or political conflicts. At the same time, however, they are also vulnerable to relatively localised disruptions such as the closure of a highway, or restrictions imposed on heavy vehicle movement.These might be difficult to locate for a business but the assurance teams need to ensure risk is given its due visibility and is sufficiently addressed to within a stipulated time.
For risk management leaders, it is significant that the global political scenario is understood and addressed to at an appropriate time frame as it negatively affects the organization upon escalation. This might include steps like analysing and predicting scenarios and risks in advance or sharing relevant information with the business leaders at the right time for appropriate addressal along with mapping further mitigation procedure. Global political events and its unpredictable trajectory, in turn leads to businesses taking decisions under duress of outside pressure. This is where correct information helps leaders to take calculatable risks and informed decisions. In recent times, ensuring sustainability while maintaining an efficient global supply chain and reducing costs is even more significant. Potential consequences arising out of a geopolitical event can range from price fluctuations to non-delivery of promises, leading to reputational damage of the said organization. Sophisticated software simulations are being implemented to solve the issues arising out of the current situational demands. To mitigate the negative outcomes of the risk involved in this process, long term impact of the strategies framed for cost reducing benefits needs to be addressed to by the organizations and business risk management leaders. The aim should be to build a robust risk mitigation strategy through an extended supply chain system, which can only be built if the organization and its risk managers have a correct comprehension of the event’s trajectory and how they actually impact the business.
Technology and the ever-looming digital disruption
Growth in technology and the ways it has changed operational risk management is unfathomable. But it has also led to multitudes of digital disruptions constantly posing operational risks, compromising the efficiency and targets of a business plan. Digital disruptions are ever evolving and constantly diversifying problems that needs to be countered as dynamically as their occurrence. For instance, over the last few years, cloud-based software and other means to integrate several departments and teams in an organization has made the idea of work from home and hybrid working style very convenient and efficient as well. The key is to locate and build up a technology enabler, to cater to the unique requirements of the business. The solution also trickles down to assist a broader network of departments to an overall corporate level. Breakthrough technologies like the Artificial Intelligence along with a vast resource of abundant data available in all spheres needs to be processed and utilised to promote existing operational systems and increase efficiency of the business functions. For our risk management leaders, this digital disruption is to be addressed by including the current systems with various jobs being performed by BOTs, cognitive technologies, machine learning and being vigilant on finding out systems and departments which might be replaced with an evolving technology in near future.
Need for a holistic understanding
Risk management leaders in today’s time need to aim at developing a holistic understanding of the risks and events that curtail the efficiency of their business operations. This can only be done by accumulating and processing information across the company throughout the departments and various functions involved in the organization. For a business to run seamlessly, amidst current challenges and hurdles, these risks should be backed by plans and countered head on with dynamic strategies. Further, in times of crises, for efficient resolution, these need to be addressed by risk management leaders, not just individually, but as a whole by viewing them as part of a system rather than in silos.
No solution can be an endgame and no system for managing risk can be enough when risk itself is evolving at various forms and degrees. For businesses to thrive and continue in an unpredictable and ambiguous risk landscape, it is a must that risk management leaders identify and remove silos in company operations by unifying and streamlining risk management operations and data. MitKat’s flagship operational risk dashboard – DataSurfr.ai – can help connect the solutions to address a wider base of issues, connect different sections of the organization for better information flow and stay updated in anticipation, , to novel risks and business threats.
