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for failing to comply with federal chemical emergency response and prevention laws. The companies all allegedly violated community right-to-know
and chemical safety laws that are designed to reduce the risk of accidents from hazardous chemicals. As a result of these cases, the facilities faced civil fines and have spent more than $1.5 million in safety improvements”

http://www.epa.gov/region1/enforcementandassistance/reports/2005OESreport/chemical.html

Failure to manage your risks appropriately can result in direct losses for failure to meet obligation (penalties, restitution, etc.), losses from decrease in  income (sales, fees commissions, etc.), statutory penalties from censure to revocation of licenses, and opportunity losses from adverse publicity, being unable to trade,  the inability to deliver, poor product or service quality. Consequently the management of risk is becoming a more important and focused topic to many organizations.

Operational Risk Management can be defined as the management of risk arising from the execution of a business’s functions.  The concept focuses on the management of risk arising from people, processes, and systems that support the business.  The approach to managing operational risk is different than the management of other types of risks, in that managing operational risk does  has more often involved managing cost avoidance instead of realizing its potential for managing growth and enabling an organization to, and enables an organization to change and improve the process without increasing risks of loss.

 

Practically speaking organizations have to accept people, processes, and systems are imperfect, and that losses will occur due to errors, imperfect systems, and processes. The size of the loss, both monetary and non-monetary that a company is prepared to accept, determines their appetite for operational
risk.  These losses are accepted because the cost of correcting the errors, or improving the systems or processes is disproportionate to the benefit of the correction. Those managing operational risk must keep the risks within their risk appetite (that is the amount of risk that is acceptable to all stakeholders in the pursuit of their business objectives).

Please take a look at these current incidents http://www.asmconsortium.net/news/incidents/Pages/default.aspx . Is your industry represented? Could these incidents have been avoided or mitigated with a proper risk management program in place?

What regulations govern the risk management of your operations?

This posting is the third of a series of blogs discussing various factors of operational risk management as it pertains to manufacturing organizations. Please feel free to comment and discuss this series.

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