How to manage operational risks in a time of regional wars and global sanctions?
Published on Jun 20, 2022

For product-based companies, even a slight disturbance in, for instance, the supply chain may lead to production shutdowns and losses. Effective risk management in these volatile times, in view of what is happening in Ukraine and other parts of the world, is becoming increasingly fundamental.

On the one hand, you can use the experience gained when the pandemic destabilized the market, but on the other — significant flexibility is necessary, as the situation keeps dynamically changing, what with new sanctions being imposed on Russia and Belarus all the time. And information technology has conveniently made it possible to greatly improve the effectiveness of managing operational risks.

How to digitalize risk management in the time of dynamic changes? What is the digital transformation?

To say that the recent years were filled to the brim with challenges for business and supply chain continuity is a trivial observation. Right now, there is practically no industry that is not beset with difficulties. The key to addressing the most pressing concerns is the digital transformation. This is linked to a completely different approach to risk management.

By definition, transformation means changes, and changes always lead to increased operational risks. Today’s dynamic changes resulting from political and military conflicts, new pandemic restrictions, sanctions and novel legislature in general are driving companies’ outward activities. This is the perfect time to seek new solutions.

Sanctions being continually imposed on Russia keep changing the global business situation practically from one minute to the next. Only those can be successful now who can react rapidly and with flexibility, switching from their tried and tested operating standards to brand new ones, better suited to the geopolitical situation.

In search of new operating methods, many organizations have transferred some of their processes to outside companies.

Outsourcing means that into your business game come third-party people, processes, systems and products. This directly translates into heightened operational risk. Already at this very initial stage you must vet the partners you are about to begin cooperating with, if only to avoid problems with inadvertently breaking the sanctions. It must be stressed that never before have sanctions against a country been so broad and imposed at such a dynamic pace.

The answer to the increased complexity of operational risk management are comprehensive digital tools. Not only do they help in automating complex operations, but they also may facilitate better communication with your business partners — which is a particularly important aspect in product-based companies, where suppliers of raw materials and services cannot be allowed to interrupt production continuity.

What are the risks in product-based companies?

One of the more significant risks, in addition to financial losses, is sullying the company’s reputation. This can easily happen if the supply chain is disrupted, and the manufacturing shop is forced to make do with raw materials or components of lesser quality. Even if these flaws get discovered immediately, operational efficiency suffers. Thus, prevention is key.

Problems like the above result from messy supplier- and risk management.

Provisional, temporary solutions may sometimes be effective, but only until a problem arises — and then it is nigh impossible to find the root cause of errors. Acting in the way described above threatens the company’s information security. This just goes to show how important today is a system that stores data coherently, in a way that makes it possible to manage it flexibly without compromising cybersecurity. Ensuring data and process security should be top priority these days, what with cyberattacks happening more and more frequently and often initiated or supported by government agencies.

Top 5 benefits of risk management digitalization

1. You can expand your provider and supplier list without risking a loss of control

Risk management increasingly frequently involves provider and supplier diversification: i.e., inflating their numbers to minimize the risk of interruptions. This leads to the necessity of supplier vetting, and then monitoring your relations. An effective, interoperational digital tool enables the creation of large databases more deft maneuvering among different suppliers within an area of interest.

2. A flexible database for working in changing conditions

Risk factors change over time. Market forces may push to the foreground factors that were thus far deemed innocuous. These must be quickly identified and then monitored. Software like the one C&F has developed enables companies to quickly update their supplier selection criteria and then to effectively pick the most compliant suppliers.

3. Comprehensive analytics

Logging events and linking them with particular suppliers, together with an extensive library of criteria, makes it possible to run exhaustive automatic business analyses, which in turn facilitates rapid error detection and root cause discovery for potential standstills, and better supply management in general.

4. Data in a secure application

An integrated application means less risk of a data leak, as all app-level events are logged, and access can be verified on multiple levels.

5. Responsiveness and mobility

The app can be used on many devices, including mobile ones, e.g., in the manufacturing shop, without access to a large display.

This is how manufacturing giants are made

Effective operational risk management is a product-based company makes up a significant part of its market value and competitive position. Even the slightest disturbance in production continuity directly translates into financial losses or even loss of business continuity. Companies must future-proof their strategies. Sound management is of key importance regardless of the political situation; sound management is crucial in new, volatile situations that require dynamic changes. Moreover, companies that take an informed approach to risk and expand risk management to their suppliers and providers become themselves a more valuable partner for other organizations. But this approach requires dedicated tools that will support risk management both within the company, and between the organization and its business environment.

Written by

Jacek Wróblewski

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