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Operational risk is hard to define and managing it requires companies to value avoided risk.
The basics of business never change: companies must compete successfully and generate profits. What does change is the nature of the risks they face. Today’s risks include market risk, credit risk and a whole range of external, strategic enterprise risks.
All too often, however, businesses pay too little attention to the operational risks they face. Such risks are hard to quantify, and they require a company to set a value on avoided loss. As a result, managing operational risk is seldom seen as a strategic imperative—even though operational and financial performance are closely linked.
The drivers pushing companies to improve operational risk management are growing. In the absence of regulations such as pertain to the financial services industry, mandates to change the way operational risk is managed are coming from boards that are less tolerant of surprises. Rating agencies and investors are now also more insistent that companies develop a more holistic view of their risk—particularly in today’s global business environment in which risks are interconnected.
While it is true that effective management of operational risk is what good managers do every day, what is now needed is an approach that builds that skill into the organizational structure. Only in this way can companies balance efficiency and effectiveness.
At Accenture, we have seen how good operational risk management can add real value to companies. From our work with clients around the globe and our research in leading practice and industry benchmarking, we believe an effective operational risk management approach consists of:
Contact us to find out how applying a consistent and complete risk framework complemented with risk analytics can help equip your company to become a high-performance business.
Michael Chagares is executive director-Risk Management lead based in Washington, D.C. Chagares has more than 20 years of experience as a consultant and banker, providing business and enterprise risk management services to large companies in a variety of industries including health care, pharmaceuticals, biotech, manufacturing, construction engineering, hospitality and real estate. His specialization in enterprise risk management and he has extensive experience in assisting clients design, develop and implement customized enterprise risk management frameworks and infrastructures helps them become high-performance businesses.
Ken Hooper is a senior manager-Risk Management, based in Washington, D.C. Over the last eight years, Hooper has provided risk management consulting services to large corporations in a variety of industries. Prior to his work in risk management, he headed up the corporate treasury, market and credit risk, and enterprise risk management functions at a large US utility. With his deep experience in the risk and capital management spaces and extensive capabilities in the areas of risk governance, assessment, quantification and reporting, Hooper guides companies on their journey to becoming high-performance businesses.
November 24, 2010
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