Operational Risk Management video transcript

Hi, this is Harry Hall the project risk coach and I want to spend just a minute talking about operational risk management. Most project managers do not deal directly with operations management but its important for project managers to understand the operations of their organisation. Projects are the vehicle for transforming operations. 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 events. So there are those 4 categories operational risks. We have People Risk, Process Risk, System Risk and External Event Risk – let's look at each of those briefly.

So first of all we have People Risk – People Risk includes our employees but it may also include contractors, vendors or clients and so we want to do everything that we can to enhance the human resources of the organisation, the people also present downside risks as well and these risks may include such things as discrimination or harassment, employee theft or dishonesty, even errors and omissions would fall into People Risk. So operational managers use different strategies to mitigate People Risk. Number 1 is recruitment. So organisations may go onto 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 check their references, we’ll do criminal background checks, we’ll conduct pre-employment tests. Then training and development. So certainly as we bring new employees into the organisation, we want to train them, do some on the job training as well as other types of training. And then we have performance management. And with performance management, periodically we would do performance reviews with the employee. The incentives. So we want to motivate our employees to stay focused and really deliver great work every day and so we have rewards and we have recognition, we have financial compensation that falls into the incentives and then the last strategy that I would is succession planning. And so we have key positions throughout the enterprise that we need to identify and we need to think about and how we can develop other people to fill those positions when someone leaves the organisation or they may die or there’s a myriad of reasons that we may lose resources. We want to make sure that we have people that can step in and help achieve the organisations strategy and mission.

So the first risk we talked about was people risk. Let’s turn our attention for just a moment to process risk. So process includes procedures and practices that organisations 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 operations in terms of process. First of all the process may be poorly designed, maybe not thought through very well. Second problem is that employees may lack training, in other words, you may have a great process and may be well designed but the employees really don’t understand the process and the third common is that employees may not follow that process so you may have a great design and in the process, they may have had the training but there’s no accountability and people tend to not follow those processes. So let’s talk about system risk. When we talk about system risk, we’re talking about risk associated with technology 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 organisation, things such as natural disasters, tornados, hurricanes, those types of events. Loos of key suppliers, 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 have a wonderful opportunity to step in with our skills as project managers, use our skills to transform the organisation through project management.

Operational Risk Management video

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