As I mentioned a couple of entries ago, operational risk refers to the risk of loss resulting from inadequate or failed internal processes people and systems or from external events.
Operational risk is broad â€“ and also neglected in current business-trade writing and vendor-produced thought leadership. Maybe “neglect” is too strong: Since most finance and risk officers feel their organizations have a relatively firm grasp of operational risk management, they tend to need help in other areas.
Protiviti's “2011 Internal Audit Capabilities and Needs Survey” confirms this feeling. When internal audit respondents were asked to identify which areas of their risk management and governance process knowledge they most want to improve this year, they listed emerging risks, strategic risks, compliance risks and financial reporting risks ahead of operational risk (which figured as the 25th highest improvement priority).
That makes sense, but operational risk also influences other areas, including strategic risks. If internal processes prevent research and development (R&D) and related innovation efforts to move forward as effectively as possible, a company risks losing ground to existing competitors and future marketplace entrants.
This problem may loom larger than finance and risk officers realize, according to a new survey jointly conducted by Accept Corporation and the Association of International Product Marketing and Management (AIPMM).
The survey, conducted in April and released a couple of weeks ago, polled 150-plus executives (C-suite leaders, VPs, portfolio managers and more) across a number of industries. Here's what the survey found:
â€¢ More than 60 percent of the respondents said they struggle reconciling top-down business models with bottom-up operational plans, pointing to a significant gap between strategy setting and execution.
â€¢ Sixty percent of respondents also confessed they are challenged making fast go-kill decisions leading to resources being wasted on poor or ill-conceived product ideas while viable product candidates are starved of critical resources.
â€¢ Eighty-nine percent of respondents said they do not have an integrated view of their portfolios across the enterprise, confirming that most portfolio decisions are made in silos either within specific functions or product lines.
â€¢ Only 11 percent of respondents reported having an integrated view of their product portfolio across the enterprise and still operate in silos despite advances in collaboration technology and social media infrastructure.
In other words, strategic alignment and visibility mark major problems in the development of new products. The two biggest challenges to product portfolio management were 1) spending on the most important corporate initiatives and 2) planning resources and priorities to match timing and market needs. Companies are generally unable to do rapid top-down modeling that helps identify viable investment options and ensure those align with detailed bottom-up plans and execution priorities.
Accept Corporation CEO Bryan Plug says companies are challenged by limited resources, faster time-to-market customer requirements and an increasingly global business environment. These conditions require what he describes as a “new approach to ideation” and the entire process of innovation management.
“The concept of product portfolio management has become antiquated, as businesses need to consider the role of the entire product portfolio in the context of overarching company objectives,” Plug adds. “This broader, more holistic approach to innovation management will require ongoing, real-time processes across the enterprise to align corporate strategy with product development, production and execution."
Operational risk management may not seem antiquated just yet, but it may need a dusting off after being put on the shelf, so to speak, in favor of other pressing risk management priorities.