OPERATIONS ASSESSMENT: Quick Facts About Risk Analysis
Risk identification, operations assessment and a full-fledged risk management plan are all essential components of a company’s foundation. There are risks and liabilities inherent in all aspects of a business. In order to eliminate and reduce these risks, there has to a regular assessment and a company-specific plan to deal with each risk.
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.
On the other hand, there are issues that affect specific areas and a limited number of people, like financial portfolios or a specific piece of machinery. There are also non-tangible risks to intellectual property rights, such as computer code. Examples include a hacker attack, website downtime due to hosting problems, a virus that wipes out data, etc. The bottomline is that the possibilities are stunningly massive, and a comprehensive risk and operations assessment ensures that this risk is well cataloged and manageable.
Assessment Components: There is a systematic way to complete an assessment, and it begins with risk identification. This includes identifying all the sources where risk can originate, and charting of possible scenarios in the path of each operation or goal. Any factor which is identified as the cause of an unwanted scenario is labeled 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 the assessment involves calculating the consequences, or cost, of each risk. Again, this is an estimate based on which parts of the company are affected, and how important the affected parts are to the operation of the company. Factors to be considered include economic loss, injuries to workers, any resultant lawsuits or fines, damage to the environment, etc.
Strategies: The next stage after risk identification and assessment is to use all the data to create a comprehensive risk management plan. This involves a combination of several strategies, including redesigning a business process to minimize or bypass the risk(s) and/or use an insurance company to transfer the risk. In case no other strategy is acceptable, the last course of action is to entirely shut down an aspect of the business where the risks are too great, and cannot be reduced or transferred.
Lastly, regardless of how a risk management plan is, it is essential to do periodic re-assessments and make sure the risks have not grown and the plan remains relevant. In summary, a credible risk management plan is a key element that keeps the company safe from catastrophic loss. It goes without saying that no bank or lender will provide financing for a medium to large scale business without an operations assessment.
