The need for operations assessment arises from the fact that every business has inherent risks which can put the very survival of the company at stake. To minimize the risks, it is necessary to develop an overall risk management strategy. This in turn needs comprehensive risk analysis.
There are industry-defined standards for risk analysis. But the methods and goals vary vastly, depending on the type of company being analyzed, and the types of risk that need to be a part of the study. For instance, it can be related to safety issues like fire which encompass the entire plant or office area.
On the other hand, there are issues that affect specific areas and a limited number of people, like financial portfolios or a specific piece of machinery. There are also non-tangible risks to intellectual property rights, such as computer code. Examples include a hacker attack, website downtime due to hosting problems, a virus that wipes out data, etc. The bottomline is that the possibilities are stunningly massive, and a comprehensive risk and operations assessment ensures that this risk is well cataloged and manageable. Assessment Components: There is a systematic way to complete an assessment, and it begins with risk identification. This includes identifying all the sources where risk can originate, and charting of possible scenarios in the path of each operation or goal. Any factor which is identified as the cause of an unwanted scenario is labeled as a risk.
Another thing that needs to be estimated is the frequency or probability of occurrence for each risk. This involves comparing the environment, structure and operational methods of the company against general industry data. This method has been extensively tested and there are huge amounts of data available for comparisons, so it’s not just guesswork but more of a precise science.
The final part of the assessment involves calculating the consequences, or cost, of each risk. Again, this is an estimate based on which parts of the company are affected, and how important the affected parts are to the operation of the company. Factors to be considered include economic loss, injuries to workers, any resultant lawsuits or fines, damage to the environment, etc.
Strategies: Once the risks have been identified and the assessment is complete, it needs to be used to come up with a risk management plan. This involves multiple strategies to eliminate risk or minimize it to a manageable level by tweaking the business process and operations. In case neither is possible, the risk needs to be transferred to a third party, such as an insurance company. As a last resort, the company can shut down a part of the business which has an unacceptably high risk.
To be noted that a period operations assessment is essential for the well-being of the company, to deal with changes in the company’s structure and operations. To summarize, no company can survive or grow from a small business to a medium level and beyond without a credible risk management plan in place. It not only safeguards the company from catastrophic loss, but is also essential for securing financing from lenders and banks.