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Best Practices

How to Minimize Operational Risk Through Great Processes

risk

Managing risk is something all organizations whether big or small have in common. The good news is that most risk, the type that impacts the ins and outs of day to day business, is well within an organization's control. Some risk factors relating to the environment, economy, competition, and political arena are beyond reach. However, daily operational risks are within an organization's control and can be managed through great processes.

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What makes a process great? Which types of daily operational risks should be managed through great processes? How can process design impact risk mitigation?

The makings of a great process

A great process is known. Simple start. Known by whom? By everyone! Process documentation and process transparency are the roots of a great process. Some processes begin organically and live only in the repetitious actions of people and systems involved in a given process. But as an organization expands and processes become more complex, process documentation is essential.

A great process is measured. Once a process is created and documented it must be managed and measured. Processes may continue on as designed in the short term, but in time, oversight and measurement become crucial to the health of a process. Particularly with the introduction of RPA, unmeasured processes may deviate from process design unbeknownst to owners. Regular measurement and consistent monitoring help to keep process behavior in line with expectations.

A great process is living. Continuous improvement is a must for a process to be great. Things change (people, products, customer needs, regulation, technology, related processes) and a process must change with it. Continuous improvement may have an incremental impact or be delivered in the form of a breakthrough change.

A great process adds value. Even with documentation, measurement, and responsiveness to environmental factors, a process is only great if it adds value. From keeping operations up to date with legal regulation to paying employees and suppliers on time, great processes serve a purpose, avoid redundancy and deliver known value.

Daily operational risks within control

The risk of losing customers, being fined by regulators or delivering a wrong product shipment are all within an organization's control. Although some outside factors may influence these risks such as competitors poaching customers, confusing or unclear regulation or supplier mismanagement of products, core control is within an organization's domain.

The following daily operational risks can be mitigated through strong processes and supported by process mining.

Loss of customers, suppliers, and employees

The relationship between an organization and its customers, suppliers, and employees exist as a series of processes. Customers build relationships with organizations through experiences with products or services. Suppliers build relationships through the experience of on-time shipments, payments, and ease of working together. Employees build relationships through on-boarding, training, payroll, skill retention and a number of other factors that are all process based.

Reputation management

An organization’s reputation is created through a series of process results. A company is looked upon poorly if they fail to meet safety standards (process failure) and they are looked upon positively if they don’t have products recalled (lack of process failure).

A decline in orders, revenue, profit, and market share

A risk that worries every company — profit loss — can be mitigated through great processes. Process mining supports risk mitigation related to a decline in orders, revenue, profit, and market share by catching deviant processes before they become a problem.

Prosecution from regulators, customers, and employees

Although a disgruntled employee or customer may have various reasons for their grief, prosecution or unlawful behavior is often a result of poor processes. Particularly with regulators, broken processes can unknowingly lead to prosecution without ill intent.

Delayed, lost or wrong delivery

Poor, unmonitored processes are ones which lead to lost, delayed or wrong product shipment. Purely system-error or human-error generated, these operational risks can be avoided by keeping tight control over processes.

To diagnose these risks, organizations need to look at how processes are actually being performed rather than blindly trusting the process. A process is only as good as its upkeep. Without surveillance, no assumptions can be made about process integrity. Managers need to stay abreast of process performance in order to mitigate risks associated with operations.

To mitigate risk there need to be actions taken to change the process design in order to:

a) Eliminate failure by process redesign

b) Detect and remove failure by inspection and review measures

c) Reduce the effects of failure by additional provisions

Learn more about operational risk and how process mining supports strong processes by getting in touch with our team at Minit.

Michal Rosik

12. 03. 2019