Risk Management: Managers Are Setting the Wrong Priorities

A global survey on risk management revealed a critical trend. Many decision makers are still not taking operational risks seriously enough – threatening the success of their companies. How are managers creating a false sense of security?

To what extent are risks taken into account in a business strategy? In 2018, consulting firm DuPont Sustainable Solutions (DSS) interviewed senior managers from various high-risk industries such as oil and gas. Operational risks cover all threats that often result in unexpectedly high financial losses – but managers can effectively prevent them. These include supply chain disruptions, fluctuations in production, legal risks, and human error. The causes are normally flawed internal processes and a lack of control mechanisms. The results of the study suggest that many managers set the wrong priorities.

Business Success Doesn’t Mean a Company Is Risk Free

According to the survey, managers don’t allocate enough resources and have insufficient skills to effectively manage risks at their organizations. A key problem is that executives and their managers often just look at the number of incidents at their company to date. This is usually low and creates a false sense of security. It only takes single serious incident to cause devastating damage. “In today’s global business environment, old methods for assessing operational risks are inadequate for executives in ensuring the sustainability and success of their businesses,” explains Davide Vassallo, Global Managing Director of DuPont Sustainable Solutions.

Operational risks are difficult to quantify. In most companies, they can only be recognized through risk assessments by management and internal auditing. The study shows that managers generally consider risk management to be important. However, only 38 percent of them actually consider it to be part of their corporate strategy. According to the study, decision makers and management teams urgently need to set new priorities and integrate more suitable risk mitigation measures into their daily processes. Leadership cannot be content with business success alone.

Different Risk Perceptions Are the Biggest Hurdle

Another critical finding of the survey is that different managers assesses company risks differently. Around 55 percent of those surveyed agree with this statement. The authors of the study believe this makes it difficult to effectively identify and minimize risks.

DuPont also examined what operational risks executive boards discussed most in meetings. This serves as an important indication of risk perception and what companies see as priorities. The result was that topics relating to finance, health, the environment, and compliance are still relatively frequently on the agenda. Plant reliability, process safety, and the supply chain receive less attention. Interruptions in production or the supply chain, due to a fire, for example, are a common cause of damage with wide-reaching consequences.

All the details: Radio Interview with HIMA Safety Expert

To what extent are risks taken into account in a business strategy?

Learn more about lessons from the DuPont survey in this interview with Friedhelm Best, HIMA’s Vice President for APAC. In MoneyFM’s show “Mind your Business” he shares his thoughts about why it is so important to make risk management a strategic issue.

Listen to the podcast here

A New Approach: Proactively Preventing Operational Risks

The authors of the survey advise that management should identify performance trends in advance rather than responding to events and incidents when they happen. A forward-thinking approach to risk is the key to successful business development. In this way, decision makers can involve their employees in their risk prevention strategy, boost productivity, and increase their company’s competitive edge. If managers don’t do this, operational risks could continue to negatively impact business performance, according to the DSS study.

HIMA safety experts also advise that business leaders should view lifecycle management as a continuous process to ensure plant availability across every phase. Regular security checks can also strengthen a company’s cybersecurity. Plants are becoming more complex and automated controls are prominent in all industries. For this reason, employees require comprehensive expertise. Managers must therefore be aware of what business risks affect the enterprise and not rely on old strategies and data.

Five Operational Risks You Should Be Aware Of

Industry trends: Digital control processes are rapidly becoming more important as companies are networked throughout the world. But this also increases risk levels in areas such as cybersecurity.

Human factor: Many mangers still see human interaction as a key risk at their companies. The strongest firewall is useless if employees act carelessly.

Processes: It doesn’t matter whether you’re it’s transactions or reporting, the most important risks lie in business processes. A company can only achieve its goals if its processes are effective, efficient, and secure.

Systems: Common-cause failures also present a significant risk. The dependence of safety-critical systems on other components can considerably increase the risk of failure.

External events: In the past, flood disasters and fires have often led to supply chain disruptions that interrupt the flow of goods. Careful contingency planning has top priority.