Enterprise Risk Management

CHAPTER 16Operational Risk Management

DIANA DEL BEL BELLUZ

President, Risk Wise Inc.

INTRODUCTION

A fable …

When Richard Preston drove into work, a sick feeling of dread gnawed at his stomach. The morning paper had a front-page article on Steelbelt Corporation, the company where he had been working for the past 18 months. It was more bad news—a fiery crash that killed a young couple and their two children. The article said that a Steelbelt-500 tire on the crashed vehicle had failed. The journalist rehashed details from four other recent accidents involving Steelbelt tires. It raised questions about the quality of Steelbelt-500 tires, the same model that was manufactured at the plant where Richard worked. Now customers were afraid to buy Steelbelt’s tires. Another article in the business section told of shareholders who were irate over a 50 percent drop in the value of the company’s stock over the past two months. Rumors of layoffs and cost-cutting were circulating among Richard’s co-workers. Two of Steelbelt’s biggest customers were threatening to tear up their contracts to put the company’s tires on 30 percent of their vehicles manufactured in North America and Europe.

Steelbelt Corporation had been in business for more than 50 years and had grown from a single plant in Detroit to a multinational company. Richard had joined Steelbelt’s internship program at the company’s flagship plant right after completing his MBA. He had enjoyed his stints in production, purchasing, and ...