Operational risk is commonly defined as “the risk of loss from failed or inadequate processes, people or systems or from external events”. These four categories represent the four cause categories of all operational risk.
Root cause analysis, which forms a key component of Bow Tie Analysis or Fishbone diagrams, requires the assessment of “but why” did a risk incident or event happen? We ask “but why” until the answer is “it just is” or the answer is “outside of our influence”. Where it is outside of our influence, it usually forms part of the “external” cause category. This category covers those risks that are driven by events external to our organisation. However, this approach may lead us to overlook whether we can:
This article looks at increasing our risk management awareness, processes, capabilities and influence across the broader supply and delivery chain so as to make our risk management more proactive and widespread.
Supply Chain Risk Management
Potential risks emanating upstream from an organisation’s suppliers who provide faulty products or components are many and varied. Examples include the reputational damage and costs associated with events such as:
The causes of these risks may be external to an organisation but the organisation still owns the risks as they have the potential to be adversely affected by them.
Delivery Chain Risk Management
Risks can also arise downstream from the organisation. Examples include:
Expanding the Scope and Reach of Risk Management
So how do we expand the coverage of our risk management further upstream and further downstream? Subject to a number of potential issues, discussed later, we should consider the following with our suppliers and customers:
Issues to Consider
There are a number of issues to be addressed before developing such a supply chain risk management process including:
How can Protecht help?
Protecht.ERM is perfectly placed to support the expansion of your risk management upstream and downstream. Provided as software as a service, our advisory team can work with you to quickly establish or enhance your supply chain risk management capabilities. Start capturing supply chain risk management data more efficiently, improve your monitoring processes and report on them more effectively.
If you wish to discuss the topic further or would like more information on how Protecht can help you better manage your supply chain risk management, contact Protecht via email firstname.lastname@example.org.
Author of 'A Short Guide to Operational Risk', David Tattam is an internationally recognised specialist in all facets of risk management, particularly at the enterprise level. His career includes many years working with PwC, as well as two Australian banks. His achievements include the creation of the Middle Office (Risk Management Department) for The Industrial Bank of Japan in Australia and the complete implementation of all Australian operations, systems, procedures and controls for Westdeutsche Landesbank (WestLB).
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