Did you know that 25 percent of employees in any given American company leave their computers unlocked and unattended for hours? Well, this happens despite the security risks that such actions pose. Such risky behavior is among a wide range of operational risks that modern businesses must grapple with in the long-haul. 

Any failure in your organization’s internal processes exposes your company to considerable operational risks. Nevertheless, many organizations don’t understand the various types of operational risks. As a business owner, conceptualizing these types of operational risks can help you develop a sensible contingency management plan.  

Here’s your guide to functional risk categories.

Types of Operational Risk 

While operational risks keep evolving with time, there are certain specific internal risks that every business owner needs to understand in the course of operations. 

Human Error

There’s still an overwhelming reliance on human input. This is even while automation remains a possible option for many businesses in the future. 

Even then, a human is to error, and most organizations have learned this lesson the hard way. Human error remains one of the most prevalent operational risks in any given organization.

Humans are susceptible to errors of omission and commission. In both cases, the motive may be intended or unintended. But the consequence on the organization is often dire. Basic human errors such as inconsistent processing may affect your business negatively in the medium and long-term. 

Cyber and Data Security Risk

The modern organization has made critical steps towards technological integration. However, with the onset of technical integration comes the growing susceptibility to cyber risk. Most business owners and managers assume that the threat to data security is only external. 

The surprising fact is that cyber risks are mutating and now contribute to some of the most overwhelming losses within organizations.  Unfortunately, cyber insecurity often stems from within the internal system. Issues as basic as failure to secure your customer’s personal information can lead to data breaches.

Companies need to remain alert to this reality. This is even as they develop the right operational risk management strategies. 

Intentional Frauds 

Businesses lose almost 5 percent of their annual income to employee fraud. It has taken organizations a long time to appreciate this fact. It’s clear that intentional fraud is exposing the weak internal controls within most organizations. Deliberate fraud is among the types of operational risks that may cripple your business slowly but surely.

What is the chance that your business will fall prey to an employee’s fraudulent schemes? The truth is, despite having robust internal systems, your company still stands a considerable threat to intentional fraud. But understanding that your employees pose a constant risk to your business’ stability is a critical first step towards building contingencies. 

Technical Risks

The dependence on automation may have inevitable unintended consequences on such an entity’s operations. Technical glitches or failures are unavoidable, but firms have the responsibility to ensure that these scenarios don’t lead to financial losses.  

Technical errors may have massive financial and non-financial consequences on your company. The problem with technical errors is their unpredictability. As such, you may need to integrate risk management alternatives during such instances. 

Quality and Business Practice Risks 

Customer satisfaction is what keeps your business going. Most enterprises understand this fact as much, but their actions often contribute to emergent client risks.  Business practices can have a direct impact on a business’s future growth.  

If you fail to meet promises made to your clients when it comes to quality, then there may be inevitable unintended consequences. Privacy and fiduciary breaches are some of the most common business practice issues your business must learn about and try to avoid at all costs.

Damage to Physical Assets Risk

Assets are an essential part of any business’ stability. However, the risk of asset damage or loss in the course of doing business is a present. This is among the emerging types of operational risks considering the rising matters related to terrorism

Your business may also fall victim to cases of damage to physical assets. This may be due to instances of acts of God, which include natural disasters. 

The impact on your firm’s financial position when such cases occur may be detrimental in the long-haul. Most businesses prefer going the insurance way when dealing with such concerns.

Conduct Risk 

The last decade has presented critical lessons on the extent to which self –interests can ruin big companies. The risk to organizations when senior managers act irresponsibility is rife. This is mainly because such top-level managers are the primary decision-makers.  

Most traditional businesses have failed in the past to institute personal liability structures. However, given the operational risk that wrongdoing among top officials present, there’s a need to pay more attention to this issue.

How to Deal with Operational Risk?

Given the circumstances within which operational risks occur, there may be a need for concerted efforts to achieve operational risk management. There’s a need for goodwill from the organization’s top leadership.

You also need to introduce risk accountability measures within the internal system. Further, firms may need to emphasize timely risk assessment. Such a move can be in tandem, with appropriate metrics to assess performance.   

Risks Are Inevitable In Business, Yet Resilience Is Everything

Businesses don’t operate in isolation. Consequently, there will be numerous hitches in the course of operations. Your organization can be able to develop a resilient structure to deal with any new threats. This especially so with understanding of these types of operational risk.

You can quickly mitigate financial, operational, and compliance risks in the future. This is especially if you have the right operational risk management support system. 

Check out our other posts for more insightful content.