Organizations need an operational risk management framework that is no-nonsense and reveals where and when the most appropriate actions should occur. In addition to risk avoidance, this operational risk management plan should encourage process improvement where it is most beneficial and needs to discourage, in general, unhealthy, if not destructive, behaviors.
However, often performance management reporting does not embrace the inclusion of an effective operational risk management plan. This avoidance can lead to much internal expense, bad publicly, the downfall of a company, and even death.
To illustrate these points consider the following three situations.
Situation 1: Lacking of an Effective Operational Risk Management Framework at Enron
Enron was considered to be a stellar performing company in the 1990’s.
However, the company’s performance management report outs were deceiving and encouraged internal destructive behaviors, which after the turn of the century lead to:
- Organizational bankruptcy
- Executives serving jail time
- Many employees and others loosing much of their life savings.
The situation could have been quite different if the company’s performance management reporting provided an honest viewed of how their processes were performing, instead of a meet-the-numbers or else performance metric-reporting methodology. With an honest process-performance-based reporting methodology throughout the company, business enhancements and other efforts that were positive for the organization, as a whole, could have been made in a timely fashion.
Situation 2: Lacking of an Effective Operational Risk Management Framework at BP
Like Enron, BP was a well-respected company.
However, BP, not unlike many other organization, had a strong meet-the-numbers or else culture. At BP, these values led to the taking of short cuts and risks, which was climaxed by its 2010 Gulf of Mexico oil spill and the ensuing disastrous results.
BP could have avoided this disaster if a check-and-balance system had been followed, where performance measures were honest and available in a timely fashion. With this process-performance reporting methodology, metrics would have been in alignment to the processes that created them, understanding that process improvement efforts were needed when a desired performance objective was not being achieved.
Situation 3: Lacking of an Effective Operational Risk Management Framework at Blue Bell Creameries
Blue Bell ice cream has been enjoyed by many.
However, on April 20, 2015, Blue Bell Creameries had a voluntarily product recall because of deaths from listeria, where the bacterium source for these life losses was determined to be from Blue Bell’s products. The company’s production shut down resulted in laying off 1450 workers and 1400 more furloughed on May 15, 2015. It was especially disturbing that listeria had been found as early as March 2013 at Blue Bell, without appropriate corrective actions being made in a timely fashion.
Blue Bell too could have benefited from having a process-based performance reporting system that included an effective operational risk management plan culture so that timely actions would be taken, when appropriate.
Operational Risk Management Framework and Ineffective Dashboards
Over the last fifteen years, from the Enron crisis to Blue Bell’s product recall, one might conclude not much has changed relative to how to businesses structurally address the creation and execution of an operational risk management plan.
What gets measured gets done; however, measurement report-outs are often made in a format that does not provide insight to what should be done to benefit the big picture.
What is needed is a performance measurement system and culture that avoids the point made by Scott Adams when he published the Dilbert cartoon.
Note: Royalties were paid for use of this www.dilbert.com material.
Operational Risk Management Framework and an Effective Business Management System
Organizations benefit when they incorporate a business management system that provides the infrastructure for an organizational culture which moves the business toward achievement of the 3 Rs of business; i.e., everyone doing the Right things, and doing them Right, at the Right time.
The Integrated Enterprise Excellence (IEE) business management system addresses this need.
IEE provides:
- An integrated effective performance metric reporting and an analysis system that delivers the structure for guiding an organization toward achievement of the 3 Rs of business.
- Predictive performance measurements that are in alignment with the processes that created them.
- An effective operational risk management plan.
- A system that incorporates the creation of process improvement efforts that benefit the big picture.
Operational Risk Management Framework and Implementing the Integrated Enterprise Excellence (IEE) System
For information about the books-documented IEE system and its implementation see:
- Article: Positive Metric Performance & Poor Business Performance – How Does This Happen?
- Recorded Webinar: From Business Chaos to Competitive Advantage
Contact Us to set up a time to discuss with Forrest Breyfogle how your organization might gain much from an Integrated Enterprise Excellence (IEE) enhanced operational risk management framework.