Ever wondered what would happen if…
That’s not just “bad luck.” It’s operational risk, and if you don’t manage it, it can quietly eat into your profits, reputation, and peace of mind.
Operational risk management helps you fix the leaks before they flood your business.
It’s about setting up smart systems, checks, and backups so your company doesn’t break when something unexpected hits.
In this blog, we explore…
Let’s get started because hoping nothing goes wrong isn’t a strategy.
Simply put, operational risk is the chance of losing money or damaging your business due to something going wrong within your operations.
It includes mistakes by employees, system failures, supply chain disruptions, compliance slip-ups, or even fraud.
Essentially, anything that disrupts the day-to-day operations of your business.
That’s why operational risk management is all about identifying risks, assessing them, and mitigating, ensuring your operations run smoothly.
It’s easy to mix up operational risk and financial risk, but they’re quite different…
| Financial Risk | Operational Risk |
| This is about money, like not having enough cash flow, taking on too much debt, or investments losing value. | This is about how your business actually runs every day. |
| It’s the risk that your finances collapse due to market changes or funding problems. | It’s the risk of losses from internal failures, system breakdowns, human errors, or supply chain issues. |
| For example, if you lose money because a client didn’t pay, that’s financial risk. | For example, if you lose money because your production line broke down or an employee messed up a key order, that’s operational risk. |
That’s why every business needs both financial and operational risk management to protect profits and ensure your operations don’t fall apart.
Operational risk is a constant presence in your business every day.
Knowing the types of operational risks helps you spot them early, fix them fast, and keep your business running without nasty surprises.
There are six types of operational risk!
| Type of Risk | What is it? | Example | How to identify it? | Quick Fix |
| People Risk | Mistakes by employees, absenteeism, or over-reliance on key staff. | Your only trained store manager quits suddenly, leaving you to scramble. | If only 1-2 people hold all the knowledge, or you constantly double-check others’ work. | Cross-train team members so that backups exist, such as documenting simple Standard Operating Procedures (SOPs). |
| Process Risk | When there are gaps, confusion, or outdated steps in how work gets done. | Orders often get delivered late because no one tracks supplier lead times. | Frequent delays, repeated customer complaints, or lots of “I thought they were doing it” excuses. | Map your critical processes (like sales, delivery, invoicing). Assign owners and review monthly. |
| Technology Risk | Breakdowns in your software, machines, or digital platforms. | A billing software crash that delays invoices and cash flow. | Slow systems, frequent manual workarounds, or panic when a machine stops. | Maintain backups, schedule preventive maintenance, and keep digital records on reliable cloud platforms. |
| External Risk | Disruptions outside your control that still hit your operations. | Your main raw material supplier shuts down, halting your production. | Over-reliance on a single vendor or market. | Build alternative suppliers, keep minimum inventory buffers. |
| Compliance & Regulatory Risk | Fines or legal trouble for not following the rules. | Missed GST filings or labour law violations. | Relying only on reminders from your CA or “we’ve always done it this way” thinking. | Create a compliance calendar and assign someone to monitor deadlines. |
| Fraud & Security Risk | Theft, data leaks, or misuse of company funds. | A cashier who pockets daily cash sales or a staff member leaking client data. | Cash shortfalls, irregular paperwork, and staff refusing audits. | Use checks like surprise cash counts, secure digital tools, and limited data access. |
Recognising these risks is the first step. If you spend your days just patching these leaks. What if you could stop the firefighting and build a system that prevents them in the first place?
Managing operational risk isn’t complicated. It’s just about being systematic. Here’s a straightforward way to do it in 6 steps…
Look across your operations and list where things could go wrong.
Examples…
Tip: Ask your team. They usually know where the real problems are.
Not all risks are equal. Decide which ones could hurt your business the most if they happened.
Try this!
Use a simple scale. How likely is it (Low, Medium, High), and how big would the impact be (Low, Medium, High)?
Focus first on high-likelihood + high-impact risks.
Once you identify the top risks, determine how to mitigate the chances of these risks occurring or limit the damage if they do.
Examples…
Put your plans into action. Tell your team what you’re changing and why, so everyone knows how to help avoid or spot problems.
Example…
If you add a double-check before shipments go out, train the team on how to do it.
Set a routine to check that your controls are actually working.
Examples!
Markets change, teams change, and technology changes. Tweak your risk plans when new issues pop up.
Simple rule: Every quarter, ask: “What new risks have shown up? Are our current plans still working?”
Done consistently, this operational risk management process becomes just a normal part of running your business.
A framework is like a blueprint or backbone. It ties your risk management process together, so it’s not random or only done after problems happen.
This framework gives a systematic approach to identify, control, monitor, and improve how you manage operational risks across every aspect of your business.
Who checks for risks, and how? (Monthly team reviews, supplier audits, machine maintenance logs.)
How do you decide which risks matter most? (Simple likelihood x impact scores.)
What rules or operational risk management tools are in place to stop these risks? (SOPs, cross-training, backups.)
Who tracks if your controls are working? How often do they report it? (Weekly checklists, monthly dashboards.)
When something goes wrong, who steps in, and what’s the process to fix it?
Because without it…
With it…
Use these practical operational risk management tools and techniques to identify, manage, and mitigate risks in your day-to-day operations.
| You don’t need expensive tech. Even a simple Excel sheet, a whiteboard in the office, and team discipline can handle 80% of operational risks if you do it consistently. |
Ever wondered if you had a proven blueprint to implement these tools and frameworks instead of just reading about them?
Let’s look at these examples of operational risks in business, categorised by sector.
Operational risks can’t always be eliminated, but you can greatly reduce their chances or lessen the damage when they occur.
That’s what mitigation is all about.
Here are practical strategies you can start right now!
Use cloud storage or secure drives for important files so a laptop crash or theft doesn’t wipe out your business records.
Keep track of small hiccups. Repeated stock delays or billing errors are usually signs of bigger issues brewing.
Know what you’ll do if your main supplier fails, a machine breaks, or a major customer cancels.
Risk controls are simply the practical rules, checks, and systems you put in place so mistakes, fraud, delays, or compliance issues are caught early, or don’t happen at all.
For packing orders, billing, safety checks, or daily cash closure. A checklist reduces human errors.
Each key process, like stock management or vendor payments, should have one person accountable.
Have short weekly reviews for top risks (like delayed orders or cash differences). It keeps small issues from turning into big losses.
Whether digital or on paper, keep basic logs of who did what and when. This builds traceability.
Define when a problem needs to be reported immediately.
Example: Any cash difference above ₹2,000 must be escalated to the owner same day.
These controls help you in protecting profits, customers, and your business reputation from avoidable slip-ups.
Once you’ve set up your risk controls, you can’t just “hope” they work. You need to regularly monitor and report on them so you catch problems early and keep improving.
It’s simply keeping an eye on critical areas, like…
It shows if your controls are effective, or if something is slipping.
Keep it simple.
Set clear thresholds. For example…
Maintain a small file or folder with these reports. Over time, this becomes a goldmine to spot patterns and fix root causes.
Without monitoring, your operational risk management becomes a paper exercise. With it, your business becomes proactive, fixing leaks before they drain profits.
Even the best plans can hit bumps. Here’s what typically goes wrong with operational risk management, and what you can do about it.
Business owners and teams often see risk checks as more paperwork.
How to handle it?
Keep it simple, like short checklists, small team reviews. Explain it saves time and money by preventing bigger issues.
Minor delivery delays, stock mismatches or late GST filings get ignored until they pile up.
How to handle it?
Treat small issues as early warnings. Regular reviews help you fix patterns before they become costly.
When risk management sits only with the owner or a single manager, it collapses if they leave or get busy.
How to handle it?
Spread ownership. Make team leads responsible for their area’s risks.
What worked at ₹50 lakh turnover may fail at ₹5 crore.
How to handle it?
Review your risks and controls every 6 months, especially when you scale, add new products, or enter new markets.
Teams may hide errors to avoid blame.
How to handle it?
Build a “solve it, don’t hide it” culture. Make it clear that finding problems early is good for everyone.
Use whiteboards, trackers, or dashboards so risks, deadlines, and checks stay front of mind daily.
Assign ownership by function. Everyone should know the top 2-3 risks they watch.
Even a simple checklist or flowchart can cut errors, if it’s actually followed.
“What if our top machine fails today?” Check if your plan holds.
Make teams feel safe flagging issues early, rather than hiding them to look fast.
Keep it lean but updated. As your business grows, your risks change.
Operational risk management is about being smart enough to spot leaks before they flood your business.
Set up a few simple checks, involve your team, and keep improving bit by bit. That’s how you protect profits, customers, and your peace of mind.
Because at the end of the day… a business that’s prepared for surprises grows faster, lasts longer, and stresses you out a lot less.
None can destroy iron, but its own rust can! Likewise, none can destroy a person, but their own mindset can.
Former chairperson of the Tata Group
800K+
350K+
300K+
80K+
Be the first to receive any new updates
© Copyright Quantum Leap Learning Solutions Pvt Ltd
