Operational Risk Management
Summary
TLDRHarry Howell, a project risk coach, discusses operational risk management, emphasizing its importance for project managers. He outlines four key risk categories: people risk, process risk, system risk, and external event risk. Howell explains strategies to mitigate these risks, such as recruitment, training, performance management, and succession planning for people risk, and highlights the project manager's role in transforming organizations through effective risk management.
Takeaways
- Operational risk management is crucial for project managers to understand, even if they don't deal directly with operations management.
- Projects serve as vehicles for transforming operations, which is why operational risk is significant.
- Basel 2 defines operational risk as the risk of loss due to inadequate or failed processes, people, and systems, or from external events.
- There are four main categories of operational risks: people risk, process risk, system risk, and external event risk.
- People risk involves potential issues with employees, contractors, vendors, or clients, including discrimination, theft, and errors.
- Operational managers use strategies like recruitment, selection, training, performance management, incentives, and succession planning to mitigate people risk.
- Process risk pertains to the procedures and practices used by organizations, which should represent best practices and be designed for quality and safety.
- Common process issues include poorly designed processes, lack of employee training, and non-adherence to processes due to lack of accountability.
- System risk involves risks associated with technology and equipment, including intentional acts, accidental failures, and security risks like cyber attacks.
- External event risk includes risks external to the organization, such as natural disasters, loss of key suppliers, utility failures, and changes in systems.
- Project managers have the opportunity to use their skills to transform organizations by managing these operational risks effectively.
Q & A
What is operational risk according to Basel 2?
-Operational risk is defined by Basel 2 as the risk of loss resulting from inadequate or failed processes, people, and systems, or from external events.
What are the four categories of operational risk mentioned in the script?
-The four categories of operational risk mentioned are people risk, process risk, system risk, and external event risk.
What is meant by people risk in the context of operational risk?
-People risk includes risks associated with employees, contractors, vendors, or clients. It can involve issues such as discrimination, harassment, theft, dishonesty, and errors.
How can organizations mitigate people risk?
-Organizations can mitigate people risk through recruitment, selection, training and development, performance management, incentives, and succession planning.
What strategies are suggested to enhance human resources and mitigate people risk?
-Strategies include recruitment and screening of candidates, selection with background checks and pre-employment tests, training and development, performance reviews, incentives like rewards and financial compensation, and succession planning.
What is process risk and what are some common problems associated with it?
-Process risk involves risks associated with the procedures and practices used in conducting business activities. Common problems include poorly designed processes, lack of employee training, and non-adherence to processes due to lack of accountability.
How should processes be designed to minimize process risk?
-Processes should be designed to represent best practices in the industry, ensuring both quality and safety.
What is system risk and what are some potential issues related to it?
-System risk is associated with technology and equipment, including hardware and software. Potential issues include intentional acts of damage, accidental failures, and security risks like cyber attacks leading to data breaches.
What is external event risk in operational risk management?
-External event risk refers to risks that originate outside the organization, such as natural disasters, loss of key suppliers, utility failures, and changes in systems.
How can project managers help in transforming an organization's operations?
-Project managers can use their skills to manage and execute projects that improve processes, implement new systems, and prepare for external events, thereby transforming the organization's operations.
What is the role of project managers in dealing with operational risks?
-Project managers play a crucial role in identifying, assessing, and managing operational risks through project management practices, which can help in transforming the organization and mitigating these risks.
Outlines
👨🏫 Understanding Operational Risk Management
Harry Howell, a project risk coach, introduces operational risk management, emphasizing the importance for project managers to comprehend their organization's operations. Operational risk, as defined by Basel 2, is the risk of loss due to inadequate processes, people, systems, or external events. The paragraph delves into the four categories of operational risk: people risk, process risk, system risk, and external event risk. People risk involves employees and external parties and can include issues like discrimination, theft, and errors. Strategies to mitigate people risk include recruitment, selection, training, performance management, incentives, and succession planning.
🛠️ Addressing Process and System Risks
The second paragraph focuses on process and system risks. Process risk involves the procedures and practices used in business activities and should adhere to industry best practices for quality and safety. Common issues include poorly designed processes, lack of employee training, and non-adherence to processes. System risk pertains to technology and equipment, including hardware and software, and can result from intentional acts, accidental failures, or security breaches like cyber attacks. The paragraph concludes by highlighting external event risk, which includes natural disasters, supplier loss, utility failure, and systemic changes, and encourages project managers to use their skills to transform organizations and manage these risks.
Mindmap
Keywords
💡Operational Risk
💡Basel 2
💡People Risk
💡Process Risk
💡System Risk
💡External Event Risk
💡Recruitment
💡Selection
💡Training and Development
💡Performance Management
💡Incentives
💡Succession Planning
Highlights
Operational risk management is important for project managers to understand as projects transform operations.
Operational risk is defined by Basel 2 as the risk of loss resulting from inadequate or failed processes, people, systems, or external events.
Four main categories of operational risk: people risk, process risk, system risk, and external event risk.
People risk includes risks associated with employees, contractors, vendors, and clients.
Mitigating people risk involves strategies such as recruitment, selection, training, development, performance management, and succession planning.
Process risk occurs when organizational procedures and practices are either poorly designed or not followed by employees.
Training employees and ensuring accountability are critical to reducing process risk.
System risk refers to risks related to technology and equipment, including hardware, software, and cybersecurity.
Common system risks include intentional damage, accidental failures, and security breaches.
External event risk encompasses risks from natural disasters, loss of key suppliers, utility failures, and changes in systems.
Examples of external event risks include tornadoes, hurricanes, and disruptions in critical utilities.
Project managers have the opportunity to use their skills to transform organizations by addressing operational risks.
Risk management strategies, especially for people risk, involve a structured approach including recruitment, training, and performance management.
Ensuring quality and safety in processes helps mitigate operational risks.
Operational risk management links project managers' work with the long-term sustainability of business operations.
Transcripts
hi this is Harry Howell the project risk
coach and want to spend just a minute
talking about operational risk
management you know most project
managers do not deal directly with
operations management but it's important
for project managers to understand the
operations of their organization
you know projects really are the vehicle
for transforming operations so what is
operational risk Basel 2 defines it as
the risk of loss resulting from
inadequate or failed processes people
and systems or from external external
events so there are those four
categories of operational risks we have
people risk we have process risk we have
system risks and external event risk so
let's look at each of those briefly so
first of all we have people risk people
risk include our employees right but it
also includes it may include contractors
of vendors or clients
and so we want to do everything that we
can to enhance the human resources of
the organization the people also present
downside risks as well and these risks
may include such things as
discrimination or harassment
how about employee theft or dishonesty
even errors and emissions would fall
into people risk so operational managers
use different strategies to mitigate
people risk number one recruitment so
organizations may go on to college
campuses or use recruitment consultants
to recruit and to screen candidates then
selection so as we're looking at
potential employees we certainly want to
do
I check the references we will do
criminal background checks will conduct
pre-employment tests then training and
development so certainly as we bring new
employees into the organization we want
to train them do some on-the-job
training as well other types of training
and then we have a performance
management and with performance
management periodically we would do
performance reviews with the employee
then incentives and so we want to
motivate our employees to stay focused
and really deliver a great work every
day and so we can we we have rewards we
have recognition we have financial
compensation that falls into the
incentives and then the last strategy
that I would mention is succession
planning and so we have key positions
throughout the enterprise that we need
to identify and we need to think about
how we can develop other people to fill
those positions when someone leaves the
organization or they may die or you know
there's a myriad of reasons that we may
lose resources want to make sure that
we've got people that can step in and
help achieve the organization strategies
and mission so the first risk we talked
about was people risk let's turn our
attention just a moment to process risk
so process includes procedures and
practices that organizations use to
conduct their business activities
processes should represent best
practices in your industry and they
should be designed both for quality as
well as for safety now there are a
couple of different problems that occur
in our daily operation
in terms of process first of all the
process may be poorly designed just
really has not been thought through very
well
second problem is is that employees may
like training in other words you may
have a great process may be well
designed but the employees really don't
understand the process and the third
common problem is that employees may not
follow that process so you may have a
great design in the process they've had
the training but there's no
accountability and people tend not to
follow those processes if that's the
case so let's let's talk just a moment
about system risk we talked about system
risk we're talking about risk associated
with technology and equipment both
hardware and software and so there can
be intentional acts to damage or cause
harm to the hardware or software there
may be accidental failures there may be
security risks that allow for something
like a cyber attack where we may end up
with a data breach so the fourth risk
category that I would highlight for
operations is what we call external
event risk and these are risks that are
external to the organization things such
as natural disasters tornados hurricanes
those types of events loss of key
suppliers about a utility failure and
changes in systems so I hope that was
helpful I just really wanted to give you
the perspective of the operations
manager the risk that they're dealing
with on a daily basis and then we as
project managers how to have a wonderful
opportunity to step in with our skills
as project managers use our skills to
transform the organization through
project management so this is Harry Hall
the project risk coach and hope you're
having a great day
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