Operational risks and businesses aren’t strangers to each other. While some risks might barely impact your business, others could lead to its jeopardy. Risks can impact your business’ reputation, finances, customer retention rates, and even data security.
Ideally, the earlier you can curtail common operations risks, the stronger your business can be as it grows. It all starts with how well you understand your business’ risk landscape. Getting serious with risk assessment is a surefire way to control your business and its future.
Here is how to approach risk assessment to curb common operational risks:
3 Levels of Operational Risk Management
Different risks will call for different stress levels when it comes to handling them. While some operational risks will be time-sensitive, others might not need immediate resolution. The three levels include:
- In-depth: In an ideal world, all forms of risk management should be done in this way. It involves taking an intensive and extensive approach to risks. You need to learn everything that makes a risk tick and pick ideal solutions. This approach often involves solutions like employee training and hiring risk assessment professionals. However, not all risks can be handled in the same approach.
- Time-critical Risk Management: This approach applies to risks that are time-sensitive. For instance, you might have to work against time if you want to launch reliable computer software on a specific date. In most cases, risks that demand this approach are often given priority.
- Deliberate Risk Management: this involves addressing risks that are important but not time-sensitive. You can use this approach for analyzing risks when monitoring the results of a project or during different project cycles.
How to Manage Operational Risk As A Business
It all starts with risk identification. As the first step to defining your risk landscape is to determine the operational risks your business has to face every day. You can start by brainstorming the different risks with your team. Other methods you can use for risk identification include talking with industry experts, assessing your business’ history, and attending industry seminars.
During risk identification, you ought to list down all the risks and their triggers. This process could also involve asking employees about their take on the different risks since they are often the ones at the front-line of managing them.
1. Analyze the Different Risks
How much could an operational risk impact your business? What is the likelihood of the risk actually coming to life? Take your time quantifying the different risks your business faces. You should rate a risk-based on its potential impact and likelihood of happening.
While it might be tough to quantify some risks, doing the same for others will come easy. Take advantage of other businesses that have faced the risks during risk quantification. You can draw insights from how it affected them and how they managed to handle it.
2. Risk Treatment
There is no silver bullet for handling any risk your business faces. While you could have a widely used solution, some solutions might not work in your current circumstances. For a risk treatment solution to be ideal, it shouldn’t strain your manpower or finances too much.
You can choose from four risk treatment options, including risk transfer, risk avoidance, risk mitigation, and risk acceptance. While risks that are too big for you to handle should be avoided, risks that will barely impact your business should be accepted.
If you can handle a risk in-house, pick an ideal risk mitigation measure. For risks that can best be handled by a third party, look for ways to transfer it to them. This can include using insurance or even outsourcing different operational tasks.
3. Risk Monitoring and Control
Operational risk assessment doesn’t end with choosing a risk treatment option. The environment around specific risks could be dynamic, which is why you should constantly monitor the chosen risk treatment options. For instance, new cybersecurity risks are bound to come up with time, limiting the effectiveness of your current risk control measures.
During risk monitoring, take into account the effectiveness of the current risk control measures in place. You should also compare whether there are better control options available, especially if your resources have grown since the last time you monitored a risk. The risk monitoring task should be assigned to specific individuals in your workforce to encourage accountability.
4. Employee Training Is Essential
Employees are at the front-line of curtailing the different operational risks your business faces. As such, it makes sense to keep updating them on your risk landscape. Not only should you create risk management policies, but you should also create training programs for them.
These programs should be flexible enough to allow getting feedback from employees on their effectiveness. Be sure to inform your employees immediately you update a risk management policy.
The best way to solidify your business’ viability is to be in control of its risk landscape. Sure, you can’t control all risks, but curtailing those within your reach strengthens your business. Take risk assessment seriously to build a better future for your business.