Operational risks impact the reputation and financial stability of a business significantly. A lack of strong risk mitigation strategies results in various operational failures, leading to crises in organizational management. That is why many businesses have started procuring significant resources to design a more robust risk-management framework.
Contemporary businesses are particularly keen to develop business strategies that align with risk evolution. Characteristically, the process begins with assessment of factors that can spring uncertainties, which also impact existing and future business objectives.
Organizations need to ensure that effective controls exist at the first, second and third risk-evolution stages. The earlier the controls are established in the risk journey, the more effective the risk detection and mitigation mechanism will be.Predominantly, operational risks are best discovered, controlled and mitigated using a seven-step approach. It supports multiple facets, and has the ability to alleviate numerous risks concurrently.
Step One – Task segregation
Effective segregation of tasks and duties reduces internal theft and risks related to fraud. This prevents one individual from taking advantage of the numerous aspects of transactions and business processes or practices.
Step Two – Curtailing complexities in business processes
Reducing complexity in different business processes radically mitigates operational risks. Organizations can achieve that by curtailing manual activities and the number of people and exceptions that rise during the implementation of business processes.
Step Three – Reinforcing organizational ethics
Creating a strong ethical compass within the organization is highly effective in mitigating operational risks management. Organizational ethics can be reinforced by combining personal values and principles of the workforce with the ideology of the organization.
Step Four – The right people for the right job
Having the right people in the right jobs can reduce issues pertaining to business process execution and skill and technology usage. This also results in appropriate workforce utilization, adherence to timelines, enhanced quality, and fewer errors and process breakdowns.
Step Five – Monitoring and evaluations at regular intervals
Business processes are more effective with well-designed performance indicators in place. Key Performance Indicators (KPIs) are critical for timely detection and mitigation of risks, provided they are continuously monitored and reviewed. This helps to identify discrepancies proactively and manage them accordingly.
Step Six – Periodic risk assessment
Periodic assessments of all facets of operational risks bring more relief to organizational management. It is imperative to be risk-ready by gauging regulatory obligations, IT assets, skills, competencies, processes and business decisions.
Step Seven – Look back and learn
Risk incidents and various remedial activities employed in the past make way for some of the most effective strategies to counter future risks. Previous risk occurrences help to implementing a stronger, proactive operational risk management framework. It also supports real-time amendments that suit the current operating scenario.
The critical task at hand is how organizations can implement the seven steps for a successful risk management program. A corporate governance, risk and compliance (GRC) platform enabled by technology can effectively support the implementation of the 7-step approach to operational risk management.
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