Operational Risk and Resilience

Introduction

In the last twenty years, businesses have sought to increase the

speed of service delivery to the customer in a bid to gain com-

petitive advantage. For instance, manufacturers have re a l i z e d

that, in an age where products become obsolete more quickly,

reducing time-to-market and inventory stock levels, instituting

integrated just-in-time production and delivery processes, can

make the diff e rence between success and failure. As discussed in

Chapter 1, customers have become more uncompro m i s i n g ,

wanting and demanding increasing levels of quality serv i c e .

Risk management has, traditionally, not oriented itself to this

objective. But trends suggest that as managers deal with

increasing uncertainty in their marketplace, they will begin to

forge links between risk management and improved customer

service.

In Chapter 1, we characterized ‘service delivery’ as ‘the orga-

nization’s ability to perform business processes on an ongoing

basis’. The success or failure to maintain operational continu-

ity is dependent on the effectiveness of a wide range of opera-

tional and management practices. In this chapter, we examine:

1 Capacity management.

2 Human resource management.

3 Supplier management.

4 Service management.

3

Operational delivery

5 Sourcing management.

6 Project management.

7 Crisis management.

These areas cover the gamut of risks that organizations face in

their bid to improve the speed and quality of service delivery to

customers, from the ‘high-fre q u e n c y, low-severity’ risks inher-

ent in small-scale operational incidents, to the ‘low-fre q u e n c y,

high-severity’ risks that can cause a crisis and bring them down.

The starting point for managing risk in these areas is an under-

standing that operational issues have a direct bearing on

strategic management. Continuity of operations determines

the context in which managers can manage. More particularly,

failure at the operational level has a knock-on effect at the

strategic level. Running smooth operations gives managers

more time and choice to make better decisions. Ongoing oper-

ational risk management can generate the right information so

that managers can fine-tune their tolerance, or appetite, for

risk-taking in the future.

The key aim is being able to better control the quality and con-

tinuity of service to the customer. Today’s organizations are

finding that customer satisfaction is becoming the key ‘differ-

entiator’ separating them from the competition. Operational

risk management can play a vital role in ensuring that man-

agers can systematically improve customer service by ensuring

that they have a strict rein over operations and service delivery.

We have mediated this message through the various sections in

this chapter:

•

Capacity management: Managing demand and supply is

critical to the timely delivery of a product or service to the

customer, and ensures that the risks associated with opera-

tional business processes are managed to an acceptable level

and bottlenecks are avoided.

Operational delivery 103

•

Human resource management: Operational continuity and

delivery of service is as much dependent on the ‘continuity’

of human assets as it is of physical assets. In other words, if

a culture exists where people are not motivated, the ability

of the organization to deliver the service effectively will be

called into question.

•

Supplier management: Control and management of risk in

the supply chain is an essential part of ensuring that the

product is delivered in the most efficient way possible to the

customer.

•

S e rvice management: O rganizations want to ensure that

their IT systems are an asset and do not become a liabil-

i t y, in the understanding that IT is now far more critical to

the success and operational continuity of business opera-

t i o n s .

•

Sourcing management: Outsourcing is becoming an impor-

tant way in which businesses can achieve their strategic

objectives, but they can only do this if they do not suffer a

loss of control over increasingly key processes, assets and

people. Operational risk management has a key role to play

in ensuring that this does not happen.

•

Project management: The creation of a project supporting

c u l t u re and the management of project related risks.

Projects are absolutely vital if organizations are to achieve

change and progress in their marketplace. Projects are a

classic case of where strategic aims depend heavily on the

continuity of operations and ability of people to meet dead-

lines. Linking strategy and operational oversight is a key

objective, then, of operational risk management in this

area.

•

Crisis management: When crises occur, one of the main

dangers that organizations face is a loss of reputation, with

plummeting sales of their product or service in the market.

104 Operational Risk and Resilience