Can your Board confidently oversee today’s operational risks?
Operational risk profiles are shaped by multiple dynamic factors and decisions, both internal and external, and the pace of change places the Board oversight role under pressure. Organisations may have systems, procedures, audits and reports in place, yet Boards are still taken by surprise when severe losses occur, often followed by a reactive “this must never happen again” response, highlighting the need for a more proactive approach to risk management.
Across many industries, the drivers of operational risk are evolving faster than the governance models designed to oversee them.
Operational risk profiles are shaped by multiple dynamic factors and decisions:
- 'Internal', such as organisational restructuring, M&A, major capital programmes, outsourcing of critical processes, workforce demographics, new technologies, asset integrity and supply chain dependencies.
- 'External', including regulatory changes, extreme weather events, energy transition, geopolitical conflicts, supply chain disruptions and cyber security.
The range of opportunities and risks and the pace of change place the Board oversight role under pressure. Likewise, the potential magnitude of associated business impacts calls for a more proactive approach to risk management.
Organisations, have plenty of systems, procedures, audits and reports.
However, we still see cases where Boards are taken by surprise when severe losses occur (e.g. significant business interruption, fatalities, etc.) – often characterised by a reactive "this must never happen again" type response.
Do you see these warning signs?
Dig deeper to uncover your real risk exposure
Warning signs of increasing risk exposure are often buried in the data dispersed across the company.
TRIFR and LTIFR decreasing, but Serious Injuries and Fatalities (SIFs) persist
High levels of unplanned shutdowns or asset integrity deterioration
Higher levels of outsourcing of high-risk work or critical services
Intensifying losses due to extreme weather events such as flooding
Moves toward highly decentralised models, with high erosion of 2nd line capabilities
Increasing insurance claims or deductibles or more exclusions
Introduction of new technologies in your asset portfolio
(e.g. hydrogen, ammonia, Li-ion batteries, etc.)
Rapid top-down cost reductions programmes
How can Boards and executive teams maintain proactive and effective oversight over operational risk in complex and dynamic operating environments? And why does this matter?
The dss+ former article "Stop Living the Lie – A Safety Wake-Up Call for the Boardroom" explored the challenge organisations face around a false sense of security around safety.
In this article we delve into whether C-Suite and BoD are actually equipped with the right insights that can enable better decisions, for example regarding directing capital, resources and initiatives on what matter most.
In fact, we have found two recurring and interrelated challenges that undermine “proactive and effective oversight” at BoD level:
- Insufficient risk awareness at Board level – commonly based on an incomplete picture of the prevailing risks and their materiality in terms of operational, financial and reputational impacts.
- Lack of informed insights – there is a tendency for performance/risk reports to be data heavy and insights light. As such, there is a failure to fully understand the 'so what?'; 'what does this mean in practice' and 'what proactive/costeffective risk management options are available to us'.
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