Risky Business: Minimizing Operational "Surprises"

Operational excellence and risk management are two principles that have arguably increased in importance since the economic down turn hit.

As Erik Udstuen, vice president of Software and Services for GE Intelligent Platforms, explained: "Operational excellence starts with visibility into operations, moves to efficiency, reliability and then, by standardizing work processes, improving planning and execution across the company results in a sustainable competitive advantage for the company in the marketplace."

However, combining the two practices within an office environment involves a certain level of balancing so undue priority is not given to one over the other.

Indeed, speaking to an Ontario Risk and Insurance Management seminar in Toronto recently, experts warned companies against "treating" the risk by modifying the source, rather than taking the necessary steps to control or mitigate it.

Aligning Risk Management and Operational Excellence

Alan Nobel, writing for ImprovementandInnovation.com, previously highlighted the view of many that operational excellence, risk management and regulatory compliance are in essence "mutually exclusive."

Nobel explains the aims of the three principles are often seen as contradictory, however this does not have to be the case.


Alan Craft, speaking at a meeting of the Operational Excellence Board, was said to conclude that a clear focus, combined with flexibility, are what is needed for the three to operate hand in hand.

"Success comes most readily where there is clear alignment of the functions. There needs to be a balance between the interests and standing of those responsible for operational excellence, risk management, and regulatory compliance," he was quoted by the news provider as saying.

For these principles to be aligned, Craft said a mutual understanding must be at the heart of a firm's operations, as without this risk management, operational excellence and regulatory compliance are not likely to sit comfortably alongside each other.

He added: "The culture of the firm must underpin these elements by encouraging behaviours that consistently reinforce the alignment and mutual interest."

Much like the way operational excellence relies on continuous improvement, it was argued risk management must do the same.

Sensible Risk Management

Cathy Taylor, the head of risk management for ADP Canada, speaking at the meeting in Toronto, explained in some cases mature organisations are now beginning to "over-treat" their risks, to the detriment of the resources dedicated to other tasks, which is contradictory to the concept of operational excellence, Canadian Underwriter reported.

"Sometimes we get so focused on adding on [treatments], and [allocating] resources and capital to dealing with the risk, we forget to look back and see whether maybe something has changed. Maybe we can pull off some of the controls or activities and allocate those resources and the money spent on controls somewhere else," Taylor said.

In some cases, she argued changes may mean risks are not assessed as being at the lowest level, but are still considered to be manageable.

These points are of particular note within the financial services industry, as in many cases risks must be taken for successes to be achieved.

A key priority for risk management heading into 2011 is minimizing operational surprises and losses, according to research conducted by the Federation for European Risk Management Associations – an aim which seems to closely align with the aims of operational excellence identified earlier.

And with predictions that "the risk management environment is evolving towards more regulations and standards", companies must find a way for their operational excellence processes and risk management to operate hand in hand.