How to Reduce Operational Risk

Every business, big or small, faces some form of operational risk. This can come in the form of natural disasters, cyber-attacks, or simply human error. No matter what the cause may be, it’s important to have a plan in place to minimize the impact that any type of operational risk may have on your business. In this blog post, we will discuss some tips and tricks for reducing operational risk.

Table of Contents

What is operational risk?

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. It can include financial losses resulting from fraud, business disruptions, or breaches of regulatory requirements.

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Operational risk is not just one type of loss but a set of potential losses that can impact an organization’s ability to achieve its strategic objectives. The types of operational risk can be grouped into four main categories:

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Business disruption and system failures
Employment practices and workplace safety
Clients, products, and business practice risk
Damage to physical assets

There are many different types of operational risks including fraud, theft, or other kinds of misconduct by employees. The most common example would be a bank teller who steals money from customer accounts. The bank may lose money in this scenario but it could also suffer a loss of reputation if its customers don’t have confidence that their accounts are safe.

How to reduce operational risk?

Implement a risk management plan: A formalized risk management plan can help you identify, assess, and prioritize risks. This will allow you to put in place mitigation measures and controls to reduce the impact of any potential incidents.
Conduct regular risk assessments: Periodic risk assessments will help you stay on top of changes in your environment and identify any new or emerging risks.
Use controls and mitigation measures: Implementing controls and mitigation measures can help reduce the likelihood and impact of incidents. Controls should be tailored to your specific organization and risk profile.
Train employees on risk awareness: Employees need to be aware of the potential risks that exist in their work environment, and how to properly mitigate them.
Have a response plan in place: In the event of an incident, it is important to have a response plan in place that outlines the steps needed to restore operations and minimize damage.
Keep up with technology: Cyber attacks and data breaches are increasing in frequency, so it’s important to keep pace with the latest security technologies to help protect your organization.
Have a backup plan: Having a backup plan in place can help you mitigate the impact of any type of operational risk.

Final thoughts

Operational risks can be mitigated through various means such as internal controls, training programs, and policies designed to prevent losses from occurring or minimize the impact when they do occur. By following these tips, you can help reduce the risk of operational incidents and protect your organization from potential harm.