FUNDAMENTAL CONCEPTS OF RISK AND THE RISK MANAGEMENT PROCESS

“Risk is the possibility of an event occurring that will have an impact on the achievement
of objectives.” Impact and likelihood affect risk measurement. Additionally, risk brings either
harm or opportunities.
As an employee of a publicly listed corporation, it is probable to encounter operational
risk. This risk is concerned with carrying out business operations on a day-to day basis.
Moreover, it is the risk of loss from a failure of internal business and control processes
Operational risk can affect every stakeholder but I will take creditors, external
stakeholders, and employees, internal stakeholders. As operational risks relate to daily operations
of the company, both creditors and employees can feel the possibility that their interest will not
be catered. And for the result, they may take actions against the company to ensure gaining their
interest.
Employees are concerned with their jobs so failure in business operations can harm and
threaten it. Part of it is the salaries and benefits. On the other hand, creditors are particular with
the risk of default which will lead them in providing restrictive provisions in debt covenant.
The problems with operational risk can be managed and mitigated by adopting proper
policies and utilizing effective procedures in operations. As operational risk is also seen as the
risk of business operations failing due to human error, the company should establish a policy
regarding employee performance and its measurement. Part of this, the first thing the
management should do is to ensure that it hired highly trained and experienced employees to
perform duties effectively. After the hiring, assigning them to right tasks is important.
Policy on proper management of equipment failure should also be implemented because
even with the presence of technology, equipments are not guaranteed to always run perfectly.
Regular maintenance and addressing small issues promptly is established as part of this policy.
Another procedure to be adopted is to promulgate proper risk assessment system. This
starts with risk and uncertainty identification. Next is to know the degree of effects of each risk.
Last is the evaluation and control of these risks.
The fact that operational risks can harm the organization makes it an opportunity to
develop risk management programs. Developing operational risk management processes and
programs should be viewed as an organizational imperative tool to aiding smooth business
operations. These programs include business continuity, information security, and compliance
measurement.