Assessing Risk: An Operational Perspective

Board Perspectives: Risk Oversight, Issue 31

Operational risk extends beyond a company’s internal operations and across the full value chain. Disruptions involving suppliers, logistics, systems, employees, financing or customers can quickly affect the business model, financial performance and overall resilience. As organizations continue to rely on globalization, outsourcing, shared services and just-in-time supply chains to improve efficiency, they also increase their exposure to sudden shocks. Effective risk assessment requires leaders to look beyond routine operations and evaluate how quickly a disruption could occur, how long it may last and how well the organization can respond. To strengthen business continuity, leadership should regularly review upstream and downstream dependencies; test scenarios involving the loss of critical suppliers, customers or channels; and confirm that response plans are in place for major operational events.

Key Takeaways:

• Assess operational risk across the entire value chain.
• Weigh efficiency trade-offs against business continuity.
• Focus on speed, duration and recovery from disruptions.
• Build response plans for supplier, customer and workforce losses.