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Why businesses must prioritise operational risk management
What you need to know:
- In a world where operational risks can spell disaster, it’s time for businesses to take proactive steps to safeguard their future.
In today’s ever-evolving business landscape, operational risk management has emerged as a paramount concern for enterprises of all sizes.
The global business environment is rife with uncertainties, ranging from natural disasters to cyber threats, regulatory changes, and supply chain disruptions. As a result, businesses that neglect operational risk management are navigating treacherous waters, putting their future at stake.
Operational risk, in essence, encompasses the potential for loss or harm due to the failure of people, processes, systems, or external events.
This risk can strike at any moment, making it imperative for companies to develop a robust framework for identifying, assessing, mitigating, and monitoring these risks.
Here are a few key reasons why operational risk management should be at the forefront of business strategies:
• Resilience in the face of uncertainty: Operational risks can stem from a myriad of sources, including internal factors such as process inefficiencies and external factors like economic downturns.
Businesses that have a comprehensive operational risk management plan in place can better withstand these shocks and continue to operate efficiently.
•Regulatory Compliance: Government regulations and industry standards are continuously evolving. Non-compliance can result in severe financial penalties and damage to a company’s reputation. Operational risk management helps companies stay abreast of changing regulations and ensures that they remain compliant at all times.
•Protection of Reputation: In today’s interconnected world, news of a significant operational failure or data breach can spread like wildfire, tarnishing a company’s reputation and eroding customer trust. Proper risk management not only helps prevent these incidents but also provides a solid response plan when they occur.
• Cost Reduction: Operational risks can be expensive, both in terms of financial losses and resources spent rectifying them. A proactive approach to risk management reduces the likelihood of such incidents and the costs associated with addressing them.
• Supply Chain Resilience: Global supply chains are vulnerable to disruptions, as seen during the Covid-19 pandemic. Operational risk management strategies include assessing and diversifying supply chains, ensuring business continuity in the face of supply disruptions.
•Cyber security Threats: The increasing frequency and sophistication of cyber-attacks pose significant operational risks. Robust cyber security measures are a core component of operational risk management to protect sensitive data and maintain business operations.
•Improved Decision-Making: Understanding and quantifying operational risks empower business leaders to make informed decisions that factor in potential risks and rewards.
In conclusion, operational risk management is no longer a choice but a necessity for businesses that aim to thrive in today’s unpredictable environment.
Companies that prioritise risk management are better equipped to navigate challenges, protect their reputation, and make data-driven decisions that drive sustainable growth.
In a world where operational risks can spell disaster, it’s time for businesses to take proactive steps to safeguard their future.
Raymond Muliisa, Business risk analyst
