What is Operational Risk and how can Fintalent help you hire the best Operational Risk Consultants?
Operational risk refers to risks that stem from the alleged mismanagement or poor performance of operational personnel, such as managers, employees, and business owners. To create a clear understanding of what operational risk is and how it affects the company’s success, it is essential for firms to identify which areas are prone to risk management problems. It will also be important for firms to implement appropriate control mechanisms so that they can mitigate any harm that might result from these issues. Fintalent, the hiring and collaboration platform for tier-1 Strategy and M&A professionals is a one-stop shop to hire some of the best Operational Risk consultants. Our invite-only platform allows hiring managers to engage vastly experienced professional Operations Risk Experts from all parts of the globe.
Operational Risk is what you put at risk when you operate your business, which includes anything from inventory to recent data breaches. But before we go into the details on what causes operational risk and how we can mitigate it, we need to understand how they got their name in the first place: the term “operational.” There are two parts to this: internal and external operations. Internal operations include the day-to-day activities such as managing inventory, processing accounts payable and customer orders, and creating reports. External operations involve managing things like vendor management or creating work instructions.
Most information about operations is gathered through observation and research through interviews with people who deal with these areas in order to determine what causes complications when it comes to operational risk. These complications in turn cause operational inefficiencies and risks that can lead to cost overruns in time or money.
So in order to keep your business running smoothly and increase efficiency, regular assessments should be done on what causes problems when it comes to operational risk. Reducing these problems will help you keep your business protected and at the same time keep operating costs down. There are many types of operational risk, which we’ll go over in detail below.
Types of Operational Risks
Financial Risk
One of the most common types of operational risk is financial risk. This type of risk includes things like fraud and theft, which means you’re putting your assets at risk of being stolen by outside sources like competitors and computer hackers. One way to mitigate this risk is to hire a third-party vendor that specializes in security and data protection for businesses to audit and perform regular checks on your network or computer systems.
Another type of financial risk is cash flow problems, or having enough money for an upcoming expense or bill. This will affect the bottom line of your company if you don’t have enough money to pay for things like loan payments, salaries, and operating expenses. One way to mitigate this risk is by using cash management software that monitors your accounts receivable and shows you whether or not you have enough money in hand so you can plan ahead.
Financial Risk is also related to how your company processes transactions, which can include things like paying vendors on time, making sure customer payments are received on time or even money getting lost in the mail or stolen from our POS system.
Here are some things you can do to mitigate this risk:
- Set up your systems to make sure invoices are created and sent out for payment for all invoices, including utilities. If you use software, make sure it has functionality that allows you to interface with third-party providers like utility companies.
- Use electronic payments instead of paper checks or cash whenever possible to ensure your payments get where they’re supposed to go.
- Keep track of the money in your cash register at all times and report any discrepancies immediately. The same goes for bank accounts so if there is any discrepancy in your accounting records or bank statements, it’s immediately reported.
- Make sure you’re not giving cash back to customers. If you’re selling something for $10 and they hand you a $20 bill, give them the change of $10 and then report the $10 you gave back as a loss. A lot of companies might not think about this but it’s a great way to make sure your business is properly protected from theft or accidental loss of cash.
People Risk
People risk is one of the most common types of operational risk in business today. People risk includes things like theft, fraud, and misuse of company assets by employees whether intentional or accidental. Some of the most common ways to mitigate people risk is to make sure you’re always hiring the right people with the right attitude.
The first thing you’ll want to do is run thorough background checks on all your employees before they start working for you. Chances are, you won’t be able to know everything about these people but what’s important is that they have a clean record and aren’t hiding anything from their past. Some companies even ask for references from their previous employers, which can give you an idea at how well they work with others and how dependable they are when it comes to getting things done on time.
Once you’ve hired the right people, you’ll want to make sure they’re getting the right training. This means that from day one, your employees are being given the knowledge and skillsets they need to do their job correctly. This can be as simple as hiring experienced cashiers who already know how to count cash and give change, or it could involve a thorough onboarding process for new employees in which they learn how to use your systems and software before going out in the field with it.
If you have a lot of vendors or outside contractors who work with your company, make sure they’re getting the same kind of training on how you do things. This will help to mitigate the risks that come up when you’re working with outside people and it might help make sure they do things correctly rather than spending time teaching them how it’s done.
Warranty Risk
The next type of risk is warranty risk, which includes things like loss of revenue due to dying or dead inventory, goods that get returned or stolen, or defective goods. One way to mitigate this kind of risk is using quality control software to make sure your shipments are always up-to-date and never have defective parts installed. If you use software, make sure it has modules for quality control associated with tracking shipments as well as product returns.
When it comes to your return policy, make sure you have a clear one that is closely followed by all of your employees. This will help to reduce the amount of returns you get as well as keep your customers happy and keep their business. If there are times where a return is necessary, make sure you have a clear procedure for how employees handle them and how quickly they’re handled. This will help ensure that your customers are satisfied with what they get in return and come back to shop again in the future.
Environmental Risk
The last type of risk in business is environmental risk. This includes things like fines from the EPA or local government when you dump toxic chemicals into a nearby river or when you break environmental laws in some other way. One way to mitigate this risk is to have a policy in place for when your employees notice problems with your environmental systems. For example, if there’s a small spill on your floor, or perhaps a chemical is spilling out of a container, make sure your policy clearly states how this type of thing should be reported and addressed. It may sound obvious but not all companies do this and it can end up costing them a lot of money if they don’t take action soon enough.
Why Is Risk Mitigation Important?
The reason it’s necessary to mitigate all the risks listed above is simple: To protect your business. You certainly don’t want to end up like this guy whose entire company went bankrupt because of a computer virus. If you know that you’re taking actions to protect your business, even in the smallest ways, you’ll have peace of mind knowing that everything is being taken care of so you can focus on running your company. This takes the burden off your shoulders so you can sleep well at night knowing that everything is in place if disaster strikes.
Summary
As you can see, everything you do in your business is an opportunity for one type of risk to crop up. To mitigate risk, you’ll want to follow these steps:
Identify the kind of risk that you’re concerned about. Once you know which kind of risk it is, consider the kinds of risks that are most prevalent in your industry or in particular parts of your business. You can also take a look at what kinds of things your competitors are doing in order to help keep thieves out of their back pockets. But make sure not to borrow ideas from anyone else’s business model because that’s stealing and will get you into trouble with the law. Understand why it’s important or how it impacts your company. Without understanding why something is important, it’s much harder to take action. So make sure you know the right reasons for taking action.
The reason you’re doing something should be because it helps your company, not because it helps your boss or one of your employees. Make sure you understand what this means for your business. Once again, without understanding the meaning behind something, it’s very hard to take action. Make sure you know exactly what you’re doing to mitigate risk so that there isn’t any misunderstanding about what the goal of your policy is or why you’re taking certain actions. Create a plan for mitigating risk and enforce it consistently. If you want employees to follow your policy, you’ll need to be consistent with it. This means making sure there isn’t any wiggle room when it comes to the requirements of your policy and enforcing it so that people will follow through.
Mitigating risk is important for every business, large and small. If you’ve never given risk mitigation a second thought, now is the time to start. Fintalent’s Freelance Operational Risk consultants are available for hire. Fintalent offers hiring managers the largest pool of finance professionals that are available to handle any aspect of business development and growth.
