Operational risk is the risk of human error causing a business to fail or decline. The error can involve financial mismanagement or failure to serve clients appropriately. For instance, the health industry has a high level of operational risk due to the dependence on human evaluation of patients' needs. Between 44,000 and 98,000 people die each year as a result of human error, according to Ron Kenett et al. in "Operational Risk Management." Managing operational risk is crucial to other organizations as well.
Mistakes often result from simple misunderstandings. In the investment field, for instance, mistakes often result from an investor's misunderstanding of a client's request. Re-reading instructions from clients or superiors, and paraphrasing their words to ensure accuracy, can minimize errors. Monitoring subordinates to ensure they understand instructions will also help to ensure understanding.
Train Employees Thoroughly
Offering employee training programs will help to avoid mistakes caused by lack of education and experience. Hands-on, supervised training will prepare employees to increase their responsibilities. Even experienced employees may need periodic "refresher" courses on complex, changing or little-used aspects of their jobs. Meanwhile, training employees to embrace diversity and avoid sexual harassment will reduce the risk of lawsuits.
Implement Communication Systems
Inadequate communication of roles, responsibilities and daily tasks causes confusion, resulting in mismanagement of tasks. An organization must clearly illustrate the appropriate flow of communication to staff members, so they know to whom they must report. The organization must also clearly communicate job responsibilities, including changes in daily tasks.
Organizations can eliminate fraud and improve financial management by conducting internal audits. An audit reviews the company's management of its finances, detecting errors and making recommendations for how to resolve them. Auditing will most likely deter employees from committing fraud, while also illustrating how the company could better invest its funds.
Implement Near-Miss Procedures
Near-misses include any risky situations in which a company can avoid loss if it manages the situation well, say Alexander Muermann and Ulku Oktem in "The Near-Miss Management of Operational Risk." A set procedure for identifying and dealing with these challenges is crucial. The procedure must begin with identifying the problem, reporting it to those with authority, classifying the problem and determining its priority. The protocol must then include distributing information to those who can act on it, analyzing causes, identifying solutions, disseminating information about resolving the issue, and finally, resolving the issue, say the authors.
Hold Adequate Insurance
Human error can damage equipment, supplies or other property, including that which belongs to the company, clients or other parties. For instance, a snowmobile operator could accidentally damage private property, or an employee could spill water on her computer. Purchasing adequate property insurance will protect the company against such accidents, just as purchasing the appropriate liability insurance will protect against lawsuits involving bodily harm.
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