Risk Management & Operations Assessment Beginners Guide

The need for operations assessment arises from the fact that every business has inherent risks which can put the very survival of the company at stake. To minimize the risks, it is necessary to develop an overall risk management strategy. This in turn needs comprehensive risk analysis.

The industry has clearly defined standards for this task. But the size and scope of any such exercise has varying goals and methods, based on the kind of operations the company runs, not to mention the kind of risks the company is most deeply concerned about. Issues like fire safety, for example, cover all property owned by the company, regardless of location or use.

Others, such as risks associated with financial investments or specific industrial processes, can vary in their impact depending on how important they are to the company. In the case of non-tangible assets such as intellectual property like software or patents, the risk and damage are again relative, depending on the monetary value and importance to operations. For example, software can be stolen by hackers or data destroyed by a virus. There are all kinds of risks, and an operations assessment helps to chart it all down and create a plan to deal with it.

Assessment Components: The first task for an assessment is the risk identification process. Two major parts of identification include flagging all risk origination, and charting scenarios to identify which factors could possibly be responsible for sending the process into a tailspin with business software implementation. Whenever a scenario ends badly for the company, the factor responsible for the detour is flagged as a risk.

Another thing that needs to be estimated is the frequency or probability of occurrence for each risk. This involves comparing the environment, structure and operational methods of the company against general industry data. This method has been extensively tested and there are huge amounts of data available for comparisons, so it’s not just guesswork but more of a precise science.

The final part of an assessment is risk consequence – an estimate of how severe a loss each risk holds in store for the company. It takes into account the direct losses, the areas of operation affected by the event, and resultant payouts. To be specific, this means the value of destroyed assets, loss of business, payments made for injuries to the workforce, damage to the environment, and fines, lawsuits, etc.

Strategies: Once the assessment is complete, it is used to craft a risk management plan. Some risks can altogether be eliminated from the business process, while others can be minimized to acceptable levels. Where this is not possible, the risk can be transferred to an insurance company, or that particular operation can be entirely shut down.

Periodic re-assessments are essential to keep up-to-date with changing business landscapes and laws, not to mention the company’s growth. To sum it up, an operations assessment and all that it provides is invaluable and vitally important for a company’s future well-being. Not only does it prevent catastrophic loss, but also helps convince prospective investors and financiers about the company’s solid foundations and ability to maintain orderly operations during expansions.

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